Uncertainty clouds Jebel Ali gas optimism
The discovery could have far-reaching ramifications for Emirati and regional gas markets, but there is a risk of jumping to premature conclusions
The UAE’s early February Jebel Ali gas find has been hailed in certain quarters as having the size and unique geological characteristics to upend regional market dynamics and infrastructure development plans. But a more cautious school of thought warns that it is too early to make assumptions even on the size of the resource, never mind the technical, economic and political journey in getting the volumes from ground to market.
The excitement is to some extent very understandable. With estimates—based on the results of around 10 exploration and appraisal wells—suggesting 80tn ft³ of shallow gas in place at the onshore discovery on the border between Abu Dhabi and Dubai, the find could rank as high as the fourth-largest in the world to date, and the largest since the 2005 discovery of Galkynysh field in Turkmenistan.
But local media claims that it could wean the Gulf state off of Qatari gas imports within five years and eventually transform it into a net LNG exporter seem premature. And similar reports that the first engineering, procurement and construction (EPC) contracts for the field could be coming within a year must come with a similar caveat—that it would be lightning speed by industry standards.
Admittedly, given that shallow gas typically carries a lower recovery price tag than the sour gas resources abundant elsewhere in Abu Dhabi, the discovery’s development could potentially overtake that of other prominent nearby projects, including the Hail and Ghasha ultra-sour offshore fields which are projected to come on stream in the middle of the decade. But the mid-February award of EPC and other related contracts on the Dalma gas development project, a key component of the wider Ghasha concession plan, by Abu Dhabi’s state-owned oil firm Adnoc to UK-listed oil services firm Petrofac is a stark reminder that sour gas projects are not immediately going into reverse.
Several analysts have doubts, at least at this stage, about both Jebel Ali’s reserves and the timetable for its development. The sheer extent of the area the discovery covers, 5,000km², means that more appraisal wells would need to be drilled in order to identify the extent of the spill point of the hydrocarbon deposits and calculate the recoverable resources, notes Oslo-based consultancy Rystad Energy.
Technological challenges will also pay a major role in both the speed and the cost of development. The geological features of Jebel Ali, which contains both conventional and unconventional biogenic resources, appear broadly similar to parts of the Marcellus shale in the US, suggesting a recovery factor of about 10-15pc, according to Robin Mills, CEO of Dubai-based consultancy Qamar Energy. The low permeability of the Miocene reservoir indicates that technologically advanced methods such as hydraulic fracturing will likely be needed for the gas to flow at significant rates.
“If only 10pc of the field[’s currently estimated gas in place] is economic [to recover], it will still have a big local impact on the Emirates’ ability to keep their infrastructure running on cheap hydrocarbons and make gas imports from neighbours unnecessary,” says Khaldoun Khelil, a senior energy expert at the Middle East Institute, a Washington-based think tank. “But if 50-80pc of [reserves are] recoverable, it will be viable to feed not just regional projects (maybe even Dolphin) but LNG trains for export.”
“If 50-80pc of [reserves are] recoverable, it will be viable to feed not just regional projects but LNG trains for export” Khelil, Middle East Institute
The Dolphin pipeline, which pumps approximately 2bn ft³/d of Qatari gas to Dubai, is high up on everyone’s mind. This is in large part because the UAE imposed a blockade on the Doha regime in 2017 as part of a wider regional conflict involving Saudi Arabia and Iran. But, while Abu Dhabi exports LNG, Dubai continues to rely on imports from Qatar’s North Field for its domestic needs, including for enhanced oil recovery and to satisfy its growing electricity demand, Deliveries arrive under a contract that does not expire until 2032.
The UAE appears keen to change that as fast as it can. Gas from Jebel Ali will go to Dubai to “enhance its energy security,” according to Adnoc. But analysts wonder if the Emirati authorities might have an interest to exaggerate the discovery—precisely in order to gain leverage to renegotiate terms with Qatar.
“It is interesting how Abu Dhabi—which is not dependent [on Qatari gas] but has a greater antipathy to Doha—is cooperating so strongly with Dubai in order to wean it off the Dolphin pipeline,” says Laura James, a senior Middle East expert at Oxford Analytica, a UK-based consultancy.
“We are quite sceptical about eventual quantities produced and timelines, since there are such strong reasons to talk up the find. So, we are not expecting a massive, immediate market impact,” she adds.
There is no doubt that the discovery is significant, all the more so since it comes on the heels of others. The first onshore gas find in the emirate of Sharjah in 37 years was announced just days before Jebel Ali, albeit at less than spectacular flow rates of just 50mn ft³/d (1.4mn m³/d).
In November 2019, the UAE moved up a notch to sixth place in the hydrocarbons global reserves rankings after the Supreme Petroleum Council revised up its recoverable resources estimates by 7bn bl of oil, 58tn ft³ of conventional gas and 160tn ft³ of unconventional gas resources.
The ultimate impact of Jebel Ali may be more about negotiations and applying competitive pressure than about shuttering Dolphin. The pipeline, which also supplies Oman, is a source of national prestige and regional influence for Abu Dhabi, says Khelil. Instead, “it is possible that pricing may be renegotiated if the new field is truly recoverable above 10tn ft³,” he suggests.
“We are quite sceptical about eventual quantities produced and timelines, since there are such strong reasons to talk up the find” James, Oxford Analytica
In the longer-term, assuming the field is successfully developed at material production rates, the question will be how the UAE will utilise all the gas. The nation is also aggressively developing alternative energy sources that will to some extent curb the space for gas in its energy mix. Its first nuclear reactor at Barakah in Abu Dhabi received an operating license in mid-February and is expecting to power up imminently. The country is currently building one of the world’s largest solar power stations, the 5-GW Rashid Al Maktoum Solar Park, and planning a second solar mega-project, a 2-GW plant at Al Dhafra.
By 2030, its energy strategy states that gas should account for only 61pc of its electricity generation, down from more than 76pc at present. But increasing overall UAE energy demand, given that its average growth is projected at an average of 1.4pc a year over the next decade, will offset much of the reduction in supply share. Moreover, with Adnoc aggressively seeking to diversify its upstream income through investments in downstream production, industrial use of gas is likely to soar, says George Voloshin, a senior analyst at Aperio Intelligence, a UK-based strategic intelligence company. The state-owned company is in the process of expanding its petrochemical output capacity from 4.5mn t/yr in 2016 to 11.4mn t/yr in 2025, according to its Strategy 2030.
More domestic gas would impact Emirati demand for LNG imports, which is likely to be diminished but not completely go away, says Voloshin. The investment case for proposed LNG import terminals such as those in Sharjah, Fujairah and Ras al-Khaimah, as well as the logic for the existing Dubai floating regasification terminal, may become more economically challenging.
80tn ft³ - Jebel Ali gas estimate
“I think that, similarly to ongoing sour gas projects, LNG terminal projects that have already been agreed (such as the one in Sharjah) will proceed as planned,” says Voloshin. “However, more speculative developments will likely have to be re-evaluated in light of the Jebel Ali and Sharjah gas finds. For instance, the Fujairah LNG import terminal—already abandoned once, only to be revived again—could well be put on hold for a second time.”