Although much of Abu Dhabi’s wealth may have been built on the sales of its crude oil and refined products, Abu Dhabi National Oil Company (ADNOC) is placing a growing emphasis on the emirate’s reserves of natural gas, some of which are sour or ultra-sour. ADNOC Sour Gas plans to increase production capacity to 1.45bn standard cu feet (scf) per day by 2022. In order to meet this goal, in November 2018 the company announced the launch of an integrated gas strategy to direct the development of the industry between 2019 and 2023.
At the Abu Dhabi International Petroleum Exhibition and Conference held in November 2018, Abdulmunim Al Kindy, then-executive director of ADNOC Upstream, told the assembled delegates that the company’s gas-related investments would help Abu Dhabi achieve self-sufficiency in gas production, potentially enable it to become a net exporter of natural gas. According to Al Kindy, by the mid-2020s ADNOC could be producing over 1.5bn scf of gas per day from its Ghasha concession.
“Even as alternative sources of energy come on-stream, the demand from power, water and industrial plants will result in a strong need for gas,” Omar Al Nasseri, CEO of ADNOC Sour Gas, told OBG. “As part of our integrated gas strategy, we will unlock new resources from both existing and future field developments to not only enable the UAE to achieve self-sufficiency, but also become a net exporter of natural gas.”
Investing in Gas
With an abundance of crude oil that is relatively easy to access from both onshore and offshore fields, ADNOC has the option of focusing on oil production and using the proceeds to import gas to fuel power generation, desalination and industry. However, the company has instead opted to invest in the expertise and technology needed to leverage its significant gas reserves. Some of Abu Dhabi’s gas resources are sour and high in sulphur, meaning that it requires processing and is less profitable to produce and market. In 2019 the emirate had 273trn scf of conventional gas reserves and 160trn of recoverable, unconventional gas resources, according to figures from the Supreme Petroleum Council. These figures continue to increase as new discoveries are made: in February 2020 ADNOC announced a new gas find of 80trn scf of shallow gas resources in place.
“Gas development in Abu Dhabi is an important step to ensure that the growing demand for energy is met while facilitating the UAE’s efforts to broaden its energy mix,” Christophe Sassolas, managing director of Total E&P UAE, told OBG. “In this context, it is essential to maintain strong local partnerships to unlock the potential of unconventional gas, not only to ensure the implementation of the latest technology and expertise, but to create a business environment conducive to further investments.”
Technological advancements have made it possible to retrieve natural gas in its various conventional or unconventional states, through, for example, the use of single-drill wells or hydraulic fracturing. While the required level of capital expenditure is often what will determine whether or not retrieval is commercially viable, given Abu Dhabi’s ambitions to achieve energy self-sufficiency, the emirate views gas recovery through more of a strategic point of view than from an economic one.
There is sentiment throughout the industry that investing in unconventional gas will yield results in the longer term. Indeed, increased domestic production would allow the emirate to reduce, and ultimately end, its reliance on imported gas. While such a strategy may result in additional costs over the short term, it will also bring strategic benefits.
As a national oil company with the long-term interests of the emirate’s citizens to consider rather than the short-term satisfaction of shareholders, ADNOC has been able to view gas production in a different light, while ensuring competitiveness. However, the adoption of forward-looking objectives for additional gas production has not impeded more immediate progress. Since the integrated gas strategy was released, the company has forged a number of partnerships designed to advance the emirate’s self-sufficiency goals.
In November 2018 ADNOC signed a deal with French energy major Total, that effectively heralded the start of unconventional gas production in Abu Dhabi. The firm hopes the agreement will help to achieve its aim of producing 1bn scf of unconventional gas per day by 2030. ADNOC awarded Total a 40% stake in its Ruwais Diyab unconventional onshore gas concession. Total is a long-term partner of ADNOC and has been operating in the UAE’s oil and gas sector for more than 80 years. Under the 40-year production agreement, ADNOC will retain a 60% stake in the concession while also benefitting from Total’s expertise in fracking.
In November 2018 ADNOC also announced several international agreements concerning the Ghasha concession, which includes the Hail, Ghasha and Dalma fields, as well as other oil, gas and condensate fields located near Mubarraz, Sateh Al Razboot and Nasr. The first deal was signed with Italian oil and gas company Eni. Under the agreement, Eni will contribute 25% of the development costs of the offshore ultra-sour gas mega-project at the Ghasha concession in return for a 25% stake in the project for 40 years.
ADNOC’s plan was to broaden its international partnership base by awarding a combined 40% stake in the Ghasha concession to attract investment and expertise to the development, while also cementing stronger ties with key export markets. According to ADNOC, the concession could produce enough gas to power more than 2m homes. In November 2018 the Germany-headquartered crude oil and natural gas producer Wintershall Dea acquired a 10% stake in the concession. In return, it agreed to fund 10% of its capital and operational development expenses. In December 2018 Austrian oil and gas firm OMV acquired a 5% stake in the concession. OMV is a publicly traded company and is 24.9% owned by Mubadala Investment Company, Abu Dhabi’s sovereign investment vehicle for strategic development.
The value of the shares bought by Eni, Wintershall Dea and OMV was not mentioned in ADNOC’s announcements. However, in October 2019 it was revealed that Russia’s Lukoil had paid an initial Dh697.3m ($189.8m) for an additional 5% stake in the field, including a participation fee.
The agreement with Lukoil was significant in terms of international trade relations as it was the first time an ADNOC concession was awarded to a Russian company. ADNOC signed a framework agreement with Lukoil and the Russian Direct Investment Fund to explore potential future cooperation at the Ghasha concession. In February 2019 ADNOC also awarded a Dh5bn ($1.4bn) contract to the UAE’s National Marine Dredging Company to construct 10 new artificial islands and two causeways at the Ghasha concession. The project is expected to take approximately 38 months to complete and will employ an estimated 3500 people.
ADNOC’s liquefied natural gas (LNG) business operations also underwent significant changes in 2019. In April of that year the company ended its long-term agreement with Japan’s Tokyo Electric Power Company. In 2019 ADNOC LNG significantly broadened its presence across Asia, including Japan, China, India and South Korea. In April 2019 ADNOC extended its supply agreement with ADNOC LNG until 2040. Under this deal, Japan’s Mitsui would retain a 15% stake, while BP and Total would retain 10% and 5%, respectively.
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