Energy projects beat global crisis

Plunging oil prices, tight-fisted banks and the worst conditions in decades for raising equity are combining to dry up the world's flow of energy investment. But however bad things get, oil and gas development is unlikely to grind to a halt. That is because the world's need for these energy commodities will not shrink to zero in the foreseeable future, and there are still plenty of oil producers - companies and states - that see energy as a sound long-term business.
Against a global backdrop of delayed and cancelled projects, some big oil and gas developments are still moving ahead. They are not always the ones shrewd observers might expect. Some are massive, high-cost projects, often in remote locations, that would require oil prices well above US$50 a barrel to be profitable. Others face political uncertainty, while still others will require costly and careful handling of the risks to public health and the environment.
What these projects have in common is the involvement of governments and large well-financed oil companies, including the cream of the world's independent energy producers and some fast-rising state-controlled enterprises. It is the size and potential impact of such projects in a world that, in the long term, is likely to be undersupplied with energy, that is attracting investors with staying power.
These players are staking out positions in the high-risk game of global energy dominance beyond the 21st century's first great economic crisis.
Here are some of their more surprising projects: Liquefied natural gas from Papua New Guinea A group of energy companies led by ExxonMobil plan to pipe gas from the remote highlands of Papua New Guinea (PNG) for export from the Pacific nation's capital of Port Moresby.
The US$11 billion (Dh40bn) LNG venture, is complicated by the difficultly of drilling wells and collecting reliable seismic exploration data in rugged terrain. Despite these challenges and the global credit crunch, the project is progressing well and is on schedule for approval in the third quarter of next year, Peter Graham, the Exxon venture manager, recently told an investment conference. Exxon's stature as the world's biggest independent oil company and its long-standing "AAA" credit rating were helping it ride out the financial storm, he said.
"We seek to borrow $10bn, and it would be foolish to say the project was immune from current market conditions, but we have significant weatherproofing as well as one of the most credible LNG projects in the region" Mr Graham said. "In late January we are planning to conduct a visit with 70 representatives from credit agencies and banks." Last month, the Abu Dhabi's state-controlled International Petroleum Investment Corporation (IPIC) agreed to acquire the PNG government's 17.6 per cent stake in Oil Search, an Australian energy company, for 1.68bn Australian dollars (Dh3.99bn). The deal's proceeds have been earmarked for the PNG gas venture, in which Oil Search is a partner.
"IPIC recognises the increasing strategic importance of LNG in the evolving energy landscape," said the Abu Dhabi company, which has a mandate to invest internationally in energy projects. Exxon said this week it was in talks with seven potential customers for 6.3 million tonnes per year of gas exports from the development, slated to start in 2013. The project's investors are hoping to benefit from a forecast shortfall in global LNG supplies, which the British consulting firm Wood Mackenzie predicts will last until at least 2015.
Oil shale development in Jordan Jordan may be close to signing a multibillion dollar concession agreement with Royal Dutch Shell to tap the country's oil shale deposits. "We are close to finishing negotiations and we expect the agreement to go before parliament for approval within the next month," Maher Hijazin, the director of Jordan's Natural Resources Authority, said last month, according to the Jordan Times.
He said the Anglo-Dutch energy group would survey nearly one quarter of the kingdom's surface. Under the proposed 15-20 year agreement, Shell would use a patented process for heating underground shale deposits over years to convert organic material trapped in the rock into oil that could then be pumped to the surface. If approved, the Jordanian development would mark the first large-scale application of the technology.
But Shell's unproved extraction process will be an expensive way to produce oil because it requires a lot of energy to heat the shale. Large-scale US oil shale projects have failed to advance in recent years due to high projected costs and environmental concerns. Jordan has been keen to develop its 40 billion tonne oil-shale resource because it represents the kingdom's best hope for commercial oil production. Lacking conventional oil and gas resources, it has to import almost all of the fuel needed to power its economy.
But the government now wants to evaluate uranium. Last month, it froze oil-shale activities in central Jordan to facilitate uranium exploration. Shell said it had a long-term relationship with the government and did not expect its activities to be affected.
Deep-water oil development in Brazil A string of recent discoveries off Brazil's coast suggest the South American country has oil resources that could propel it into the premier league of energy producers. But the crude lies below several kilometres of ocean and at least 1km of rock salt, posing drilling problems that make it some of the world's most expensive oil to extract.
Nonetheless, the British energy company BG Group and the Brazilian state-controlled oil company Petrobras expect to start producing oil from the eight billion barrel Tupi field by the end of 2010. BG is also conducting "fast track" planning for two other deep-water oil projects. Last month, Frank Chapman, the company's chief, said the recent drop in oil prices would not affect the developments. Petrobras said it would pull back from several overseas oil projects to deploy more resources at home.
However, the oil-price slide since July is compounding uncertainty that was already clouding investment prospects for Brazilian offshore projects after the country's government said it may form a national oil company to own 100 per cent of the deep-water reserves.
Deep-water oil and gas exploration in China China National Offshore Oil Corporation (CNOOC) will step up deep-water oil exploration next year in the South China Sea, where it plans to invest 200 billion yuan (Dh106.78bn) in oil development by 2020.
The company said last month it had not yet been affected by the global financial crisis, but would proceed cautiously. The investment would come from CNOOC's two Hong Kong-listed subsidiaries and foreign investors, it said. The state-owned oil company is seeking to develop oil and gas reserves in deep-sea areas to supply growing energy demand in China, the world's second-largest oil consumer after the US. Although China's GDP growth has slowed during the global downturn, its economy is not expected to contract. As a result, the energy needs of Asia's most populous nation will continue to increase.
CNOOC has signed four production sharing contracts for deep-sea oil development with small to medium-sized independent oil producers including Husky Energy, a Canadian company controlled by the family of the Hong Kong magnate Li Ka-shing. Still, the endeavour faces challenges. CNOOC lacks technical experience and equipment for deep-sea exploration, and may need to lure major western oil companies into partnerships on more attractive terms than it has offered the smaller enterprises. Analysts said territorial disputes in the South China Sea could also limit the scope of CNOOC's exploration activities.
Turkey-Israel pipeline Of all the pipeline projects proposed for the Middle East and surrounding states, one of the strangest is a plan to transport oil and gas between two countries known neither for energy production nor for particularly close political and trade ties: Turkey and Israel. At the heart of the project is an equally odd-sounding plan to facilitate oil deliveries by tanker to India. The attraction for a country importing most of its oil by an indirect route from Central Asia is that the project would cut shipping time by more than half to 19 days from 40 days.
Because of delicate diplomatic relations between India and its subcontinental neighbours, most oil bound for the South Asian country is loaded on to tankers at Black Sea ports, shipped through Turkey's crowded Bosphorus into the Mediterranean Sea, then through the Suez Canal to the pirate-infested Gulf of Aden, and hence to the Indian Ocean. Instead, Turkey and Israel are proposing to build an undersea pipeline between Turkey's Mediterranean export terminal at Ceyhan and the southern Israeli port of Ashqelon. From there, oil would be piped across Israel to the Red Sea port of Eilat for loading on to tankers.
Natural gas could be moved through a parallel set of pipelines, then liquefied at LNG facilities proposed for Eilat. India has scheduled trilateral talks next month with Turkey and Israel to advance the scheme. "It is not a simple project," said the Turkish energy minister Hilmi Guler. Turkey, which is trying to build a position as a major transit hub for oil and gas, has also made progress on sourcing gas for the project from Russia, recently securing the support of the Russian monopoly gas exporter Gazprom.
The revival of interest in a project that has made little headway since it was proposed in 2006 follows the scrapping of a rival proposal to build a gas link between Iran, Pakistan and India. That plan succumbed to disagreements over gas pricing and US opposition to India developing trade ties with Iran.
Sour-gas development in Abu Dhabi Abu Dhabi's $10bn (Dh36.73bn) Shah gas development may be one of the most expensive gas projects undertaken on the Arabian Peninsula, but it remains a top priority for Abu Dhabi National Oil Company (Adnoc), even as the state-owned enterprise slows the pace of oil development.
Due to a gas shortage, "we had to develop gas faster than we would have done," said Abdul al Kindy, a senior Adnoc executive. "The local demand for gas has gone beyond what anyone could have planned for, and that has added urgency to accelerate gas development." Developing the big Shah gas field is the centrepiece of the emirate's gas strategy, even though the project to pump "sour gas", which is generously laced with lethal hydrogen sulphide, from thousands of metres below ground is fraught with technical difficulties and public health risks. But Abu Dhabi has little choice if it wants more gas to fuel power plants and industrial developments needed to diversify its economy. Its recent efforts to secure more gas imports from its Gulf neighbour Qatar have not succeeded.
In July, Adnoc announced an agreement with ConocoPhillips, a US company with expertise in sour gas development, to develop the Shah project. ConocoPhillips recently said it planned to award the front-end engineering design contract for the development early next year. @Email:tcarlisle@thenational.ae