By Daniel Canty
The opportunity for an IOC to participate in the Middle East’s premier upstream gas project came back on the table in March. Oil & Gas Middle East investigates which companies are on the grid, and who is destined for pole position in the bid to net Abu Dhabi’s giant sour gas project.
is thought to still be on the lookout for a major partner for its colossal, multi-billion
dollar sour gas recovery project at the Shah Field, following the withdrawal of
ConocoPhillips earlier this year.
With more than 200 trillion cubic feet of gas reserves, Abu Dhabi 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 the Emirate’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 6000
– 10,000 tonnes of sulphur produced with it each day is removed. Major EPC and process
package elements of the project were awarded in the wake of Conoco’s departure,
a clear signal that the project is both as necessary to Abu Dhabi’s energy vision
as it claimed two years ago, and that the ADNOC hierarchy will not be deterred from
meeting that goal even if it has to proceed, for the time being, alone.
It was initially widely believed that GASCO would go it alone,
with Fluor as a lead technology partner. But the immense scale of the undertaking,
and the fact that, unlike oil or sweet gas production, the dangers inherent in sour
gas recovery, sulphur removal, and processing are magnified because of the product’s
intensely toxic make up, pose an HSE challenge beyond any other being undertaken
in the region today.
The desire to link up with an experienced sour gas partner should
be seen through that prism in this case. The ADNOC Group of companies are more than
capable of making the project happen, but they have in recent years also emerged
as one of the most competent and diligent players in the field of health, safety
When dealing with natural gas that has a sulphur content in the
30% range, the slightest escape could, and most likely would, prove disastrous or
fatal to field and plant operators.
Additionally, while H2S rich gas has been produced from many
fields the world over, few, if any fields or projects deal with a product which
matches the concentration involved in the Shah Field, nor on the same scale as the
proposed project in terms of output and processing.
Project to date
Since March, the Abu Dhabi Gas Development Company Limited, established
by Emiri Decree in February has awarded around US$6 billion worth of projects, approximately
$4billion of which have been signed to date.
Abu Dhabi National Oil Company (ADNOC) awarded a major slice
of the $10 billion contracts for its sour-gas project just before summer. Despite
Conoco’s withdrawal, the new chief executive officer has 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 told Oil & Gas Middle East at the Sour Oil and
Gas Advanced Technology (SOGAT) conference in Abu Dhabi in
Speculation that the project had been on a go-slow, and that
the IOC partner ConocoPhillips was looking for an exit 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 confirmed on
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. Italy’s Saipem has emerges the largest winner at the Shah project, confirming
its award of the sulphur recovery unit and liquid sulphur transport pipeline, valued
at about US$1.648 billion. South Korea’s Samsung Engineering secured the contract
for the utilities and offsite facilities construction package valued at $1.496 billion,
while a consortium of Spain’s Tecnicas Reunidas and India’s Punj Lloyd signed up
for the $463-million gas gathering contract. Yesterday’s ceremony brings the tally
of signed engineering, procurement and construction (EPC) contracts to $3.6 billion,
with the total tally of awarded — but not necessarily yet signed — contracts coming
in just shy of $6 billion.
Fluor and CH2M Hill Companies unit Veco Corp. also signed project
management contracts for the Shah project in 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 said.
The deals largely went to companies which had for a significant
time been seen as front-runners until awards were confirmed earlier this year, but
saw costs coming in significantly below previous estimates—even before and following
the 2007–08 peak of the global oil and gas industry’s cost inflation curve. “The
operating company and project owners are happy with current costs,” said Al Ghafli.
Some way to go
Not all contracts at the project have been awarded yet, and not
all of those awarded have been signed. Nevertheless, with some of the largest deals
now finalised and filed, it is becoming apparent that the widely quoted $10 billion
- $11 billion cost of the project looks set to come down significantly.
The cost control effort looks even more impressive when compared
with 2007–08 cost escalations — on the back of global shortages in materials, skills,
and machinery — that led developers to expect the unconventional Shah sour gas project
to come in at levels between $13 billion and $15 billion.
“ADNOC balked at committing at that stage — quite rightly so, as
it turns out — given the production cost per mmBtu of gas that would have ensued,”
says Samuel Ciszuk, Middle East energy analyst at IHS Global Insight. Abu Dhabi,
like its neighbours, has historically been used to cheap gas for domestic use, most
often in the form of associated production on the back of its oil output, although
its more recent gas shortage - at a time when domestic power demand has been rising
as an effect of the federation’s tremendous economic growth - has forced it to look
to more unconventional reserves to supply the domestic markets.
These are, and will continue to be for a considerable time, generously
subsidised, making it in ADNOC’s interest to keep production costs down to a minimum,
as it will end up paying the difference between actual production cost and the low
market cost for perhaps decades, before thorough reforms in this area are achieved.
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 200 kilometres 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 had been simultaneously investigating a rail option. The decision
has since been made that the Shah Habshan Railway, a 264 kilometre long line from
the Gulf Coast Port of Ruwais to the Shah sour gas field will go ahead.
Four contracts, covering ballast, rail, switches and crossings,
and sleepers, have already been let by Union Railways. Full commercial service is
expected to commence in 2014, which adds weight to the assumption this is a deadline
for the project to be operational and realistic.
Despite pushing ahead with the ambitious schedule in a timely
fashion this year, it is still believed Abu Dhabi Gas Development Company is on
the lookout for a viable international oil company partner. However, having come
so close before, only to be shunned for ConocoPhillips, it is thought the majors
will be looking for improved terms on which to join forces.
The original bid from Conoco was believed to be hundreds of millions
of dollars, billions if some sources are correct, cheaper than the alternatives
offered by global rivals. Indeed, the low cost Conoco allegedly bid may have been
the decisive factor behind its withdrawal.
This means agreeing terms would be the biggest issue in coaxing
one of the majors said to be in the running back on board.
Initially Shell, ExxonMobil, and Occidental proceeded to the
advanced bidding stage, all at one time or another touted as the front runner. It
would be fairly safe to assume that the same names are once again leading the pack,
perhaps adding Total into the mix this time too.
In terms of technology, all of the major contenders have in house
solutions, tried and tested, which could be upscaled to fit the Shah project.
Exxon has been promoting its Controlled Freeze Zone (CFZ) technology,
a process that efficiently removes impurities from natural gas. Exxon’s flagship
H2S solution is, by its own claim, less expensive than existing technologies, requiring
fewer processing steps and equipment. According to Exxon, this solution would suit
the Shah site as it “increases its attractiveness, especially for offshore and remote
applications.” The CFZ technology works by removing CO2 and hydrogen sulfide (H2S)
from natural gas in a specially-designed section of a distillation tower, where
CO2 is allowed to freeze in a controlled manner. Next, CO2 is remelted and further
distilled to recover valuable methane. It can then be pumped for injection into
dedicated wells – either for sequestering or for use in enhanced oil recovery.
Exxon also claims its CFZ process meets natural gas pipeline
quality requirements without additional polishing, requires no solvent regeneration,
additive recovery or downstream dehydration facilities and has no upper limit on
CO2 or H2S content.
Exxon has built an impressive pedigree at its demonstration site
at Clear Lake,
near Houston, Texas. The CFZ technology went operational in 1986. The pilot plant processed natural gas
with high levels of CO2 (as high as 65%), and at rates up to 600,000 standard cubic
feet per day. The successful separation yielded an overhead gas product stream with
as low as 300 ppm of CO2, and a liquid CO2 stream with as low as 0.5% methane.
In the 1950s, Total became the first oil company ever to take
up the challenge of developing very sour gas, when it began developing the immense
Lacq field in southwestern France, whose gas contained 16% hydrogen sulfide and
10% carbon dioxide. The first sweetening unit was installed in 1957 and was based
on the use of a chemical molecule known as DEA, from the amine family. When in contact
with raw gas, DEA reacts quickly with the hydrogen sulfide and carbon dioxide and
strips out the acid compounds. Total says sixty years of innovation have improved
the process, its performance and energy efficiency, while lowering its cost. The
next step was developing MDEA, a selective amine designed to eliminate hydrogen
sulfide, followed by activated MDEA, which can extract some or all of the carbon
“Our cutting-edge expertise means that we have been awarded contracts
to develop more than 60 sour or acid gas fields worldwide, in the United Kingdom, Iran,
Thailand, Russia, Norway
and the Middle East. For instance, in the Elgin
and Franklin fields in the
UK sector of the North Sea, our customised solutions can sweeten gas with variable
carbon dioxide and hydrogen sulfide content,” according to a Total spokesperson.
More recently, the company has developed a hybrid solvent formulation
consisting of an amine and a physical solvent. The process, deployed since early
2008 at the Lacq plant, does a better job of stripping the mercaptans from the gas,
while also removing the hydrogen sulfide and carbon dioxide.
“To tackle ultra-sour/acid gas Total opted to switch from chemical
to physical techniques. The resulting disruptive innovation, dubbed Sprex, is the
product of five years of R&D and is dedicated to gases with very high hydrogen
sulfide contents. It was followed by Sprex CO2, for gas with high carbon dioxide
concentrations,” says Total.
Both work on the same principle: the hydrogen sulfide and carbon
dioxide are separated from the methane by means of once-through cooling in a system
at temperatures as low as -70°C. Whereas the conventional method converts the hydrogen
sulfide to sulfur and releases the carbon dioxide to the air, Sprex delivers the
separated acid fractions in the form of a compressed liquid. This residue is then
ready to be pumped into a geological reservoir.
Of the front runners, Oxy may lay claim to having the largest
portion of its business invested in the Middle East.
More than a quarter of Oxy’s worldwide oil and gas production comes from the MENA
region, where the company has been active for more than forty years. Production
at Oxy’s operations in Qatar,
Oman, Yemen, Libya
stood at 254,000 barrels of oil equivalent per day in 2009.
Oxy is the second-largest oil producer in both Oman and offshore Qatar,
and a partner of Abu Dhabi’s Mubadala in the giant
Dolphin Project, the premier transborder natural gas project in the Middle East. One of region’s largest energy initiatives, Dolphin
supplies natural gas – produced from wells offshore Qatar,
processed at Ras Laffan and transported through a 230-mile-long subsea export pipeline
– to markets in the United Arab Emirates
Following on from that successful relationship, Oxy tied up with
Mubadala again this year to redevelop the long-producing Bahrain field, site of the first oilfield discovery
in an Arab Gulf state in 1932. Field operations began
on December 1, 2009.
The only player to have come out publically and say it would
not be interested, specifically on the terms originally offered to and accepted
by Conoco, is California-based Oxy.
“We have consistently said over the last two years that the terms
of the contract that was negotiated between ConocoPhillips and Abu Dhabi, the terms
economically, are not attractive to us; however, if the Government wishes to approach
us with different terms, we’ll look at them,” said Dr. Ray Irani, Oxy’s chairman
and CEO in a Q1 conference call earlier this year.
The company is reported to be back at the table for the Shah
project, but has remained tight-lipped about any discussions since the beginning
of this year.
Royal Dutch Shell was widely regarded as the front runner right
up to the announcement that Conoco was partner of choice. The company also has close
ties with the region, and the UAE in particular, and has played a part in gas production in the
Emirates for 30 years.
Shell’s involvement in Abu Dhabi
goes back to 1939 as a shareholder in the Petroleum Development (Trucial Coast)
Ltd. Shell is a partner with ADNOC in oil production and gas processing in Abu Dhabi. The company is
a 15% shareholder in state-run Abu Dhabi Gas Industries (Gasco). Gasco holds the
concession to produce and process natural gas produced at the UAE’s onshore fields.
In terms of local momentum, and particularly on the issue of
sour gas, Shell may have assumed the driving seat this year. Whether this plays
to the companys advantage over the Shah Field could not be called certain however.
Kuwait Oil Company (KOC) and Shell signed in February this year
an Enhanced Technical Service Agreement for development of the Jurassic Gas fields.
Under the contract, Shell will deploy technical experts to Kuwait to support
KOC in its management of the ongoing development of the sour Jurassic gas fields.
This project is both complicated and challenging, due to unconventional geological
formations, difficult reservoir conditions and complex gas compositions.
The development of non-associated gas is a key strategic project
on which KOC depends to meet a significant part of Kuwait’s need for clean energy.
“This agreement reinforces our long-term commitment to the State
of Kuwait”, says Malcolm Brinded, executive director of upstream international at
Shell. “We will bring to bear our experience which we have gained developing the
most challenging gas resources around the globe including sour and
“The development of the Jurassic Gas fields is complex,” said
Sami Fahad Al-Rushaid, chairman and managing director of Kuwait Oil Company. “We
believe that KOC resources combined with Shell’s expertise will maximize production
from the Jurassic Gas fields.”
Back in 2008 Shell acquired Cansolv Technologies Inc, widely
regarded as a sour gas processing pioneer in the industry. With the acquisition
Shell got its hands on Cansolv’s proven SO2 Scrubbing System. This is a regenerable
amine technology for sulphur dioxide removal from combustion gases, and has been
in a variety of applications including oil refineries, chemical plants, utilities
and non-ferrous smelters.
At the time Greg Lewin, President, Shell Global Solutions International
B.V., said: “As global energy demand grows and the availability of easy oil and
gas diminishes, strong gas treating capabilities will be required when unlocking
new resources such as sour natural gas or clean coal energy.”
“We want to further develop technology that has the potential
to clean up contaminated gases and flue gases – predominantly SO2 solutions in the
first instance. With the addition of Cansolv’s technology to our portfolio, we have
enhanced our capability for the treatment of various compositions for syngas – from
coal gasification, contaminated natural gas and refinery streams – and further differentiated
Shell’s current technologies capture sulphur in its different
compound forms: in the Sulfinol or ADIP processes an amine-based solution captures
hydrogen sulphide; in biological desulphurisation bacteria “eat” hydrogen sulphide
to produce sulphur; and in the Cansolv process sulphur dioxide is captured at the
source or at the end of processing from gas in the smokestack.
Once captured the various sulphur compounds pass through two special units – the Claus unit
and the Shell Claus Offgas Treating unit – where catalysts convert up to 99.99%
of it to liquid sulphur. Finally the pure, or elemental, sulphur is cooled into
a solid, bright yellow sulphur material that can be stored safely in stockpiles,
or sent for industrial use or further processing to manufacture fertiliser, sulphur
concrete or sulphur asphalt.
In July, Brinded addressed Shell’s existing sour gas projects
in the region, perhaps taking the opportunity to highlight the company’s local pedigree.
In tackling the energy mix conundrum Brinded said supplies have to be increased
– particularly through technologies that unlock difficult gas. “That includes unconventional
gas in tight reservoirs and also sour gas,” he said.
“Take Saudi Arabia,
which is the third biggest gas reserve holder in the Middle East, after Iran and Qatar. We estimate that three-quarters
of the non-associated gas in that country is found in accumulations that are sour
or in tight reservoirs – or both. Shell has been exploring for gas in partnership
with Saudi Aramco in the Rub al Khali area of the
Kingdom. We are focussing the efforts of our 50/50 joint venture in 2010 and beyond
on the sour gas resources of the Kidan geological trend,” he added.
too has sizeable non-associated sour-gas reservoirs, but their locations are known:
below the country’s Northern oil fields. These reservoirs consist of fractured tight
shale and carbonate formations. The challenge for Kuwait
is to develop them in an efficient and safe manner – much the same as Abu Dhabi.
“For these two oil-rich Middle Eastern countries, producing more
gas for electric power means a significant reduction in CO2 emissions, freeing up
oil for exports,” added Bridend.
To pick a front runner amongst these would be presumptuous, and
possibly premature. The Supreme Petroleum Council in Abu Dhabi will have final sign off on a deal of
this magnitude, and that may take a while yet. However, time is of the essence.
With so much project work signed off and underway, and the 2013-2014 timeline proposed
and confirmed earlier this year by Al Ghafli, it would be prudent to appoint a partner
sooner rather than later.
Shell’s background in the field, its existing relations with
Abu Dhabi, and its
preffered status last time round would suggest an edge. Speculation that its spurning
two years ago would make it a reluctant bidder seems far fetched. IOC opportunities
to participate in upstream projects of this scale, in this region, are slim pickings.
Ultimately it’s a world-scale, world-class project which all four companies will
no doubt be clamouring for.
Assumptions about the price tag, or dollar return on BTUs produced
are also out of date. With the project cost down by an order of 25% - 35%, according
to Al Ghafli, even sticking to the original budget frees up additional resources
to share with a partner. Abu Dhabi’s
commitment to getting the project back on track, and getting it right will override
any desire to save a buck. By year-end the situation will be clearer, and Oil &
Gas Middle East expects that by Q1 next year a delighted partner will be appointed.