Dubai is looking to shore up its supplies of gas and cut costs by acquiring overseas assets, according to a report in the National.
Speaking to the National, Nejib Zaafrani, the chief executive of the Dubai Supreme Council of Energy, said “we are looking at how we can really secure the supply in the long run through different sources and options […] If you have assets, you reduce your exposure to market prices.”
Zaafrani did not specify target assets or the amount of money Dubai has to spend.
“We are looking at all the options within the UAE, within the region and then beyond the region,” Zaafrani told the National. “The decision will most likely take place before the end of the year.”
Dubai’s energy for power generation primarily comes from gas. Regional supplies come from Abu Dhabi’s ADNOC and Qatar via Dolphin Energy, the IPIC-backed company running a 460-km pipeline from Ras Laffan to the UAE and Oman.
Dolphin Energy currently meets around 30% of the UAE’s energy needs through 25-year supply agreements struck in 2007 at a below market rate price of $1.35 mmBTU. The firm has been unwilling to supply further gas to the Emirate at the sub-commercial rates, which has left the Dolphin pipeline at only two thirds of its 3.2 billion cu ft a day capacity and forced Abu Dhabi Dubai to look elsewhere for energy supply.
As Dubai’s summer demand spike increased alongside oil prices, the Emirate began looking for alternatives of flexible supply, away from its previous reliance on diesel. Since 2010, the Emirate has been importing of LNG from Qatar and further afield to its import terminal at Jebel Ali, as demand growth has outstripped supply from GCC neighbours.
The UAE appears to have hitched its immediate fortunes to LNG, before large investments in sour gas projects bear fruit. Abu Dhabi’s Mubadala Oil & Gas plans to build a terminal on the Gulf of Oman coast to import liquefied natural gas into the UAE by 2015.
Prevailing LNG import prices are thought to be around $18 mmBTU. By acquiring assets Dubai could reduce this figure while fixing its supply costs.
Unlike the US, where a glut of gas produced from shale formations has seen prices collapse, the UAE has to compete with Asian countries for regional supply, which has been squeezed by Japan’s increased reliance on other fuels as the country’s nuclear program sits dormant.
In its Medium-Term Gas Market Report, the International Energy Agency predicts that Asia’s LNG demand will increase by 17% to 2017, making it unlikely that Gulf States will reap much benefit from China’s adoption of an ambitious shale gas fracturing program.
Shell has been advising Dubai on LNG, and supplies around 1 million tonnes a year of LNG for the Emirate under a long-term contract. The Dubai Supply Authority buys LNG on spot markets from as far as Australia.
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