The two companies are continuing to hammer out details of a final deal to invest US$10 billion in a strategic gas development.
ADNOC to finalise Shah agreement with ConocoPhillips
Abu Dhabi National Oil Company (ADNOC) expects to finalise a joint venture agreement next month with ConocoPhillips for the Shah sour gas project. The two companies are continuing to hammer out details of a final deal to invest US$10 billion (Dh36.72bn) in the strategic Abu Dhabi gas development as they face the expiration of their preliminary agreement at the end of this month. But Saif al Ghafli, the chief executive of the joint venture, said he was "confident" the partners would come to terms. "The final agreement is under discussion. I wouldn't be surprised if it materialised next month," he said on the sidelines of the Gastech conference in the capital. In the meantime, ADNOC and ConocoPhillips are moving ahead with plans to line up contractors for 10 separate construction packages. All are required to build the array of facilities needed to produce and process Shah gas, and to transport sales gas and marketable by-products from the inland gasfield to end users in the UAE, or to storage and handling facilities at Ruwais, on Abu Dhabi's coast. But none of the contracts can be awarded until financing for the project is in place. Mr al Ghafli said he expected gas production from Shah to start in late 2014. "The joint venture is not cast in stone, but you need to keep moving to ensure the bits and pieces are in order," he said. "If you wait until they finally agree, then it delays the whole process." The Shah project will be the first to tap Abu Dhabi's large "sour gas" reserves, which are technically challenging to produce because the natural gas is deeply buried and heavily laced with toxic hydrogen sulphide. Gas from the Shah field, near Liwa, contains 23 per cent hydrogen sulphide and 10 per cent carbon dioxide, which is also undesirable because it is incombustible and contributes to global warming if released into the atmosphere. But on the positive side, the Shah field is also rich in valuable natural gas liquids and condensates, which can be stripped from the gas stream and sold separately. The economics of the project are believed to hinge on market prices for such byproducts, and on construction costs. Mr Ghafli said the partners expected to drill 20 wells before the start of the project to pump about 1 billion cubic feet per day (cfd) of gas, yielding slightly more than 500 million cfd of gas sales after processing. The raw gas would also yield up to 50,000 barrels per day of condensate, 4,400 tonnes per day of natural gas liquids and 10,000 tonnes per day of sulphur. The complex project entails, among other things, building a 250km pipeline to carry liquid sulphur, which would be the longest of its type in the world. The construction and operation of the sulphur pipeline presents technical challenges of its own that only a few specialist companies worldwide are equipped to handle. Rather than hold a competitive bidding round for the sensitive contract, ADNOC and ConocoPhillips plan to invite selected contractors to submit development plans next year, Mr al Ghafli said. On Monday, Yousef Omair bin Yousef, the chief executive of ADNOC, said the joint venture had launched bidding rounds for four key Shah engineering, procurement and construction contracts related to gas production, gas processing, sulphur removal and utilities. He said the partners hoped to award the contracts early next year. ADNOC and ConocoPhillips were considering tendering a further two contracts next month, Mr al Ghafli said. The Shah project is considered crucial for helping to supply Abu Dhabi's increasing demand for gas to fuel electricity generation and heavy industry, and as feedstock for petrochemicals. ADNOC will hold a 60 per cent interest in the venture and ConocoPhillips 40 per cent if the companies finalise their agreement. email@example.com