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Thu 1 May 2008 04:00 AM

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Sour gas is sweet news for economy

Abu Dhabi looks set to start tapping its vast reserves of 'sour gas' with the award of the $10bn Shah project.

Abu Dhabi looks set to start tapping its vast reserves of ‘sour gas' with the award of the US$10bn Shah project.

It will be a hugely significant deal as the UAE and its neighbours struggle with a looming Gulf-wide power crisis that is acting as a brake on developing the downstream industries they need to achieve economic diversification and job creation for the next generation.

Although the UAE holds the world's fifth-largest natural gas reserves, much of it is 'sour', meaning it has a high content of toxic hydrogen sulphide that makes it much more complex and expensive to process than conventional natural gas.

Escalating construction costs have raised doubts over the viability of developing the 'Shah' and 'Bab' gas fields which were together estimated to cost US$10bn - now it may cost as much to develop just one of them.

What's more, the costs of building such technically complex facilities is not expected to retreat any time soon.

It has made balancing the cost of the sour gas project against the economic benefits which may derive from it, that much more difficult for the government.

The recent spike in the price of sulphur may just take some of the pain away from the project's huge cost escalation should it develop into a long-term pricing trend, as the gas is produced as a by-product during the extraction process.

However, the sums are far from straightforward and need to take into account the future availability and cost of gas within the region.

The waters have been further muddied by the prospect of the UAE embarking on a nuclear power programme with the publication of last month's policy document which commits to establishing the Emirates Nuclear Energy Corporation.

But the debate should not just be about how much the UAE pays for the gas it produces.

The goal in all of this is to move from being a primary user or exporter of raw materials such as natural gas, into becoming a processor of that gas.

The sour gas project could trigger a whole series of spin-off investments in areas such as petrochemicals and aluminium by providing the gas needed to operate crackers and smelters, helping the UAE add value by processing its hydrocarbon wealth and providing manufacturing jobs.

Such projects have already been conceived, the studies have been published and they are ready to go - or at least they would be if the gas needed to operate them was available to use.

Paying so much to secure the nation's gas requirements may be a bitter pill to swallow for officials used to tapping much cheaper energy. But the economic benefits that locally produced gas will bring should sweeten it.

Sean Cronin is the editor of Arabian Business English.

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