$5.5 billion worth of awards for the Shah sour gas project have been awarded, despite the exit of ConocoPhillips. We speak to Saif Al Ghafli, CEO of the operator company
Abu Dhabi National Oil Co. awarded a major slice of the $10 billion contracts for its sour-gas project late last month. Despite Conoco’s withdrawal, the chief executive officer committed to pushing ahead with the venture. Saif Ahmed Al-Ghafli, CEO of the Abu Dhabi Gas Development Company has reiterated recently that whatever rumours abound, the project will come onstream as scheduled.
“The Shah gas development is set to come on stream in the second or third quarter of 2014,” he said, speaking at an event in Abu Dhabi in late March.
Persistent rumours that the project had been on a go-slow, and that the IOC partner ConocoPhillips was looking for an exist strategy were proved right in April when the company bailed on its second major Middle Eastern joint venture in as many weeks. Following the company’s departure from the Yanbu integrated refinery with Saudi Aramco, the widely-anticipated withdrawal from the Shah Field project was announced on 29th April.
However, later that day contracts worth almost $5.5 billion were awarded to key companies to provide services for the sour gas field development project. Korea’s Samsung Engineering and Italy’s Saipem, Europe’s biggest provider of oilfield services by market value, have won an aggregate of about $5 billion in contracts for gas processing, sulphur recovery and other oil and gas services. Saipem won three contracts worth $3.5 billion while Samsung said it secured a separate contract for $1.5 billion. Saipem’s contracts are for $1.9 billion for gas processing, $1.45 billion for sulphur recovery and $196 million for product pipelines. Samsung will build utility and offsite facilities needed for the project. A group comprising Tecnicas Reunidas and Punj Lloyd Group also won a joint contract worth $463 million for gas gathering in the project.
Shah will process 1 billion cubic feet (28 million cubic metres) of sour gas a day into more than 500 million cubic feet of fuel and 10,000 tonnes of sulphur, Al Ghafli has said. Fluor and CH2M Hill Companies unit Veco Corp. signed project management contracts for the Shah project on 29th April.
Ahead of these announcements, the early works package contract was awarded to the UAE’s Al Jaber Group.
“This in itself shows that we are serious,” Al Ghafli reminded gathered media at the recent Sour Oil and Gas Advanced Technology conference. Persistent questions about the final investment decision were brushed aside and the CEO reiterated that packages would indeed be awarded soon.
Abu Dhabi, with more than 200 trillion cubic feet of gas reserves, boasts one of the biggest gas basins in the world, but much of it is sour. The project in question is viewed by many as central to Abu Dhabi’s ability to maintain economic growth, and unlike its vast oil reserves, which are tapped for export, the gas will be used almost exclusively for domestic power generation.
Sulphur-rich natural gas at the Shah Field, once considered too expensive or technically challenging to produce, can only be used once the 6,000 – 10,000 tonnes of sulphur produced with it each day are removed.
What to do with that sulphur is arguably one of the toughest problems associated with the development of sour gas at this scale, and may have been one of the reasons ConocoPhillips has bailed on the project.
When the original feasibility study for the project was tabled, the optimum solution was to pipe the produced sulphur in molten liquid form from the Shah processing plant to Ruwais, over 200km away.
However, due to the complexity involved (Sulphur has to be kept between 115 C and 152 C to remain stable in liquid form), and the hazards associated with such a long overland solution, ADNOC has been investigating a rail option.
“The project owners have been debating the use of rail over a pipeline for the Shah gas field. There are ongoing discussions between ADNOC and Union Railways. This will have implications on other project packages, most notably on the sulphur granulation plant, which will be moved to the Shah site as opposed to the Ruwais export terminal,” revealed Al Ghafli. Union Railways, which is building a $8.2 billion nationwide rail network, is in advanced talks with state-run ADNOC for the contract, which would see the sulphur transported by 2013-14. The rail vs. pipeline decision is currently sitting with ADNOC, not the Abu Dhabi Gas Development Company, which will be the operator, said Al Ghafli.
“It is a decision for ADNOC,” he said. Al Ghafli also said cost revisions since the project was initially launched had been highly satisfactory.
Cost revisions were late last year believed to have decreased to $10 billion from the initial $12-13 billion. “The operating company and project owners are happy with current costs,” Al Ghafli stated.
