The UAE Oil & Gas Greenfields Projects conference starts tomorrow in Abu Dhabi as the Emirates undertakes the highest value oil and gas projects in the Arabian Gulf.
The UAE is set to grapple with technological challenges, deadlines and expensive gas projects amid continued costly energy subsidies. The Emirates currently has US$37.45 billion worth of oil and gas projects under execution out of a total Gulf figure of $89.95bn, based on data from Meed Projects, as it undertakes huge projects to boost both oil and gas production.
The UAE ranks third in the Gulf, with $28.36bn of as-yet unawarded oil and gas projects, according to Meed Projects.
It plans to increase its oil output capacity to 3.5 million barrels per day (bpd) by 2017, after missing the target of 3 million bpd last year.
The most pressing issue for reaching the 2017 target is the awarding of oil concessions due to expire early next year and which will be responsible for a large percentage of the oil increment. BP, Royal Dutch Shell, Total, ExxonMobil and Partex Oil & Gas are all partners with the state-run Abu Dhabi National Oil Company (Adnoc) in the oil concession Abu Dhabi Company for Onshore Oil Operations (Adco). Although Adnoc holds a controlling stake in Adco, the presence of international partners and investors is important, as they will help in reaching the 2017 target.
"The question is how to attract the right company for the right project," says Robin Mills, the head of consulting at Dubai's Manaar Energy Consulting and Project Management.
"In some projects you will need very big, sophisticated international investors. In some cases you want to build relationships with major customers like the Chinese and Japanese and work with their national oil companies. With some projects, you need small companies that are lower cost and will bring new technology.''
International oil companies would want to stay in the concessions, which allow them to hold equity interest in oilfields in a region where such opportunities are rare, unlike the nationalised oil industry of Saudi Arabia and Kuwait, for example.
Bidding for the concessions is expected to start next month but uncertainty surrounding the renewal, the tenure of the concessions and the firms that will be involved could delay reaching the 3.5 million bpd target towards the end of the decade, analysts say.
"The pace of investment [in concessions] is taking longer than the Government's plan and that's the reason why we anticipate the 3.5 million capacity target not being realised by 2017," says Richard Quin, the head of upstream research for the Middle East and North Africa at the consultancy Wood Mackenzie.
As well as the challenge of renewing the concessions is the issue of suitably qualified employees, analysts say.
"It is undeniable there is a shortage of skilled labour, there is also a shortage of unskilled labour," says Paul Navratil, a partner at PwC Middle East energy, utilities, and mining.
"At the same time, the third party market, the contractors and [engineering, procurement and construction] markets are also very stretched because there are a lot of projects that are going not only in the UAE, but across the region."
Abu Dhabi is undertaking one of its most difficult gas projects with plans to produce expensive gas from sour gasfields that have a high percentage of hydrogen sulphide. Adnoc has teamed up with the US firm Occidental Petroleum in a $10bn joint venture to develop gas from Abu Dhabi's Shah sour gasfield. Although the project will pump 1 billion cubic feet per day of high-sulphur content gas, it will actually produce about 500 million cubic feet per day of network gas after removing the sulphur, by the end of next year.
This year, the Government awarded Shell a 40 per cent stake in the "ultra-sour" Bab gas project that will produce 520 million cubic feet per day of network gas after stripping it from impurities, by 2020.
The Government is taking on such gas projects to feed rising power demand and industries as part of the efforts to free up oil for export and build a gas-fed manufacturing base that diversifies income away from oil. Gas is also re-injected into oil fields to maintain oil well pressure.
"The real challenge is that the availability of cheap gas is declining and there is now a focus on monetising more expensive gas sources. This is paramount to increasing supply," says Mr Quin.
The Government is also building a liquefied natural gas (LNG) terminal in Fujairah to feed local demand.
The terminal will import 9 million tonnes of LNG a year. Abu Dhabi and Dubai also import Qatari gas by pipeline through the Dolphin project. Dubai also buys LNG from international markets for its domestic use.
Gas sales in the UAE this year are in the range of 5.2 billion cubic feet a day, of which 57 per cent are domestic sales and LNG exports, 37 per cent are Dolphin imports and 6 per cent are LNG imports, according to Wood Mackenzie estimates. Abu Dhabi exports some LNG to Japan.
The UAE, along with all other Gulf states, subsidises energy products and this has encouraged a rise in domestic consumption particularly for power and water production in the hot summer months. The IMF has already called on the UAE to lower its energy subsidies to help alleviate this burden on its fiscal budget.
UAE officials have said investments in gas alone will be about $25bn as the Government undertakes costly projects and the former UAE Energy Minister Mohammed bin Dhaen Al Hamli, who served until March, said earlier this year the UAE was likely to be a net importer of gas in few years.
The Government is not just relying on gas to produce power. Abu Dhabi plans to start producing nuclear energy in 2017 and ultimately it wants to generate 25 per cent of the UAE's power from nuclear energy.
Dubai also recently announced plans to build its first clean coal plant to help meet its power needs.
"We still anticipate imports of gas into Abu Dhabi. It will be a challenge for the next decade to ensure there is enough gas to meet domestic demand. Part of the reason demand is growing so quickly is because prices are subsidised," says Mr Quin.
"The pipeline imports are very much flat, and LNG imports will increase despite the diversification of power generation away from gas-fired plants."
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