Shah field costs plunge by $3bn

Abu Dhabi National Oil Company (ADNOC) will save almost a quarter of the cost of developing the Shah field as it seeks to boost the nation's oil capacity by tapping toxic "sour" gas reserves. Costs for developing the field have fallen to US$10 billion (Dh36.72bn) from $13bn, a senior ADNOC official said on Monday. The chief executive of the company, Yousef Omair bin Yousef, in his opening address to the Gastech conference in the capital, said ADNOC would focus its development efforts on two projects in particular: its joint ventures with the US energy company ConocoPhillips to develop Abu Dhabi's Shah sour gas deposit and with Germany's Linde Group to extract nitrogen from air for use in enhanced oil recovery projects. ADNOC and ConocoPhillips have invited bids for four contracts related to developing the Shah gasfield, Mr bin Yousef said. They would be among $35bn to $50bn of deals that ADNOC plans to award by the end of next year, as construction costs fall. The global recession had created a window of opportunity to implement major projects to increase oil and gas output at lower costs, Mr bin Yousef said. "This financial crisis caused many companies and countries producing or consuming energy to downsize and economise. Consequently this led to weakness in world demand and a decrease in the oil price, leading to problems in expansion and execution of projects. In ADNOC, we look at the bright and positive side of the crisis," he said. Ismail al Ramahi, the manager for the gas processing division at ADNOC's exploration and production directorate, speaking on the sidelines of the conference, said that with the $3bn fall in the cost of developing the Shah field, overall, ADNOC hopes to save between 30 and 50 per cent of the original cost estimates for a slate of energy projects planned for Abu Dhabi, including refining and petrochemicals developments, as well as projects to raise oil and gas production capacity. "We need more contractors. We're moving very fast," Mr al Ramahi said. The Shah project, which is crucial to helping Abu Dhabi develop new gas supplies to fuel power plants and heavy industry while supplying feedstock to its growing petrochemicals sector, is the largest of ADNOC's current crop of oil and gas developments. It would be the first to tap Abu Dhabi's deep reserves of "ultra-sour gas", consisting of natural gas heavily laced with corrosive and potentially deadly hydrogen sulphide, and would be among the biggest projects of its type in the world. ADNOC and ConocoPhillips announced a preliminary agreement to develop the Shah field last July, but have been slow to finalise the deal, which still awaits a binding investment decision. ConocoPhillips officials were unavailable for comment. Mr Ramahi said he expected the four Shah construction projects to be awarded by the end of next year. Two months before announcing its tentative sour gas deal, ADNOC announced an $800 million nitrogen joint venture with Linde. The "Elexier" project would be among the largest in the world to use nitrogen on an industrial scale to boost oil production. ADNOC plans to use the atmospheric gas to replace some of the natural gas it currently pumps into oil reservoirs to maintain pressure and squeeze out more oil. That would free more gas for power and petrochemical projects. The state-owned company is also studying another large sour gas development for Abu Dhabi. Total, the French energy group, is among the international companies believed to be interested in bidding on a concession to develop the Bab gasfield. In another effort to boost the emirate's gas supplies, earlier this year ADNOC invited bids on construction contracts related to a project to bring offshore gas ashore for distribution through the national grid. The contract awards are due within a few months, Mr al Ramahi said. tcarlisle@thenational.ae