What is your opinion of the sour gas market in the region?
In the context of the overall supply and demand situation, GCC countries have been actively developing their sour gas reserves, both on- and offshore. Operators are overcoming the numerous challenges, which include the need for deep drilling and advanced technology to meet the specific requirements of certain fields, as well as creating the infrastructure necessary to handle and process the toxic and corrosive sour gas.
The GCC countries have a number of sour gas projects under development. Of particular note is the Shah Gas field in Abu Dhabi, which started producing gas last year. The field will process 1bcf a day of sour gas into 500mcf of usable gas after stripping it from sulphur.
Qatar, similarly, is developing the Barzan gas project, located 80km northeast of Ras Laffan Industrial City. The $10.3bn project will deliver gas to the domestic market, primarily serving power and desalination needs. This project will be delivered in two phases: Train 1 is almost complete and Train 2 is also nearing completion. When in operation, the total offshore production from all RasGas-operated facilities will reach approximately 11bcf per day.
Do you think the utility of sour gas is limited to electricity production, or do you believe it can prove useful for other sectors as well?
Once sour gas is processed, it competes with other natural gas supplies in a particular market. It also competes as a fuel for power generation against other options in the power mix, such as liquids, gas, coal and renewables.
The demand for gas in the GCC is driven by power generation, desalination, petrochemical projects and EOR (enhanced oil recovery based on gas injection as oil fields mature and transition from primary to secondary and tertiary recovery).
Renewables, especially photo-voltaic (PV) and onshore wind, have become very cost-competitive and achieved grid parity in many markets. The bid by ACWA power for the DEWA solar PV project has set a new benchmark of less than $0.06/kWh. GCC countries seeking to diversify their energy mix in power have a viable choice between developing renewable energy or investing in sour gas projects.
The availability of renewables is not continuous and depends on the availability of sunlight or wind, while gas-based power generation is more reliable and controllable. While renewables may not be suitable to supply the full base load, they are becoming a very important part of the energy mix – for example in the Middle East, power generation from solar sources coincides conveniently with the daytime peak load of air-conditioning usage.
Should demand for sulphur decline, do you think that NOCs will continue to develop their sour gas reserves and production capabilities?
The Internal Energy Agency (IEA) estimates cost of high-sulphur gas from new offshore fields in Saudi Arabia to be between $3.50 and $5.50/MMBtu. The cost of production at Shah Gas field is expected to be as high as $5.50/MMBtu. The viability of sour gas projects depends on the pricing of gas in the region. Current prices in the GCC range from about $0.75/MMBtu in Saudi Arabia to $0.95-2.35/MMBtu in other Gulf countries. The current subsidised pricing environment will not be able to sustain sour gas development costs.
The Economist Intelligence Unit forecasts that Saudi Arabia’s natural gas demand will double between 2010 and 2020. Some GCC countries, such as the UAE and Kuwait, have become net importers of gas. The viability of a sour gas project in the GCC, therefore, depends on the alternative sources of natural gas with which it competes.
Development of sour gas projects is also determined by a country’s energy strategy. For example, although sour gas development may not be economically competitive compared to alternative sources of gas supply, its development could still mean longer-term energy security and diversification.
