Abu Dhabi moves to boost gas supply

Abu Dhabi National Oil Company (Adnoc) has signed an agreement with Germany's Wintershall and Austria's OMV to develop a technically challenging gasfield in the inhospitable desert of Al Gharbia.

The development of domestic sources of natural gas has become a priority in the light of the rapid growth in electricity consumption in Abu Dhabi, driven by ambitious industrial plans and increasing household use.

The foreign partners will drill three wells in the field next year to gauge its size and commercial viability. The area in question near Shuwaihat is already known to contain natural gas laced with high levels of toxic sulphur gas.

Should production become feasible, Adnoc will take part in the development and production of the reserves.

If the project goes to production, it is likely Adnoc would take a 60 per cent stake in the concession, as it has in previous ventures with international oil companies, with the two private companies splitting the remaining 40 per cent down the middle, Wintershall said.

Wintershall is a newcomer to Abu Dhabi while OMV is a partner in several refining and processing ventures and is part-owned by the Abu Dhabi's International Petroleum Investment Company (Ipic).

The gas deal follows the arrival of China National Petroleum Company and South Korea's National Oil Company in Abu Dhabi.

The burgeoning relationships with such key Asian players is seen as a strategic alignment with some of the biggest importers of Abu Dhabi's crude oil. The deal with OMV and Wintershall is evidence that Adnoc is receptive to smaller companies with expertise needed to exploit its sour gas potential. Both companies bring extensive experience in producing sour gas.

"Adnoc looks at which firms have the right expertise to meet the needs of a project in the ideal way," said Gerhard Haase, the Wintershall representative in Abu Dhabi.

Abu Dhabi has ambitious plans to develop its industrial base and diversify away from the hydrocarbons that have been the basis of its wealth. To support this growth, it is crucial to expand its power generation in tandem.

"If they want to continue to build on their position as an economic hub, they will have to make sure there is enough electricity around - it is central to their strategy," said Sam Ciszuk, an analyst at KBC Energy Economics.

Gas is the fuel of choice for electricity production, but is also required by the new plants springing up produce petrochemicals, steel and aluminium.

At the same time, consumption by households is showing no signs of a let-up as heavily subsidised rates for both electricity and water give no incentive to curb excessive use.

According to figures from Abu Dhabi Electricity and Water Company demand for electricity from Abu Dhabi's power plants will increase by more than 13 per cent each year up to and including 2015.

Still more gas is needed to pump into ageing oil reservoirs to keep oil output flowing.

Abu Dhabi has huge reserves of gas, estimated at 215 trillion cubic feet or 3 per cent of the world's total, but most of it has a high content of deadly sulphur gas, known as sour gas, which makes producing it more costly.

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