Adnoc proceeds with $10 billion sour gas project before selecting partner

International companies Exxon Mobil Corp., Royal Dutch Shell Plc, ConocoPhillips and Occidental Petroleum Corp. are vying to join Adnoc in the project and become the first foreign company to gain access to the country's gas reserves, among the world's largest.

"Abu Dhabi holds the fifth-largest gas reserves in the world, but it is importing gas to meet its domestic energy needs,'' said Dalton Garis, an energy analyst at the U.A.E.-based Petroleum Institute. "Abu Dhabi wants to double its population by 2010 as well as build gas-intensive industries such as aluminium smelters, so it needs to increase its supply of natural gas.''

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Adnoc, meantime, has decided that sulphur produced as a byproduct with the gas will be transported by pipeline from the field to a processing facility 120 kilometres (75 miles) away. The state-run company debated using trucks or a purpose-built railroad to carry the sulphur, before deciding to use a pipeline, said an Adnoc official who declined to be identified by name.

Abu Dhabi, home to more than 90 per cent of the U.A.E.'s oil and gas reserves, is under pressure to develop its "sour,'' or high-sulphur, gas reserves to meet the growing energy requirements of its burgeoning economy.

"There is potentially in excess of 30 trillion cubic feet of undeveloped sour gas reservoirs in the initial two onshore fields scheduled for development,'' said Stuart Lewis, a Middle East analyst at oil and gas consultancy IHS Energy. "Reserves of this magnitude would be difficult for any company to overlook, particularly in an economy as vibrant as that of the U.A.E.''

The state-run company will use heated water to maintain high temperatures inside the sulphur pipeline, to prevent the material from solidifying and getting stuck, the Adnoc official said. Sulphur must be kept at a temperature of above 115 degrees Celsius (239 degrees Fahrenheit) to remain in liquid form.

Between 10,000 and 20,000 tonnes a day of Sulphur is expected to be produced once the project comes onstream in 2011. It will use gas from the Shah field while another field, Bab, will be developed in a second phase because it is more complex and has a higher sulphur content.

The project cost of $10 billion could rise if wells prove less productive than anticipated, requiring more to be drilled. Oil and gas projects in the Middle East have become more expensive over the past three years because of greater demand for construction contractors and rising raw material costs, such as steel.

The primary motivation for developing U.A.E. gas reserves is political, rather than financial, said Lewis. "Although technically challenging, the development of non-associated gas might be regarded as a national imperative in terms of energy security.''

Adnoc already extracts some sour gas, producing about 6,000 tonnes of sulfur a day at a gas processing facility at Habshan, which is then loaded into 150 trucks daily and carried 120 kilometres to a sulphur-handling terminal at Ruwais.The U.A.E. has more than 214 trillion cubic feet of natural gas proved reserves, according to BP Plc statistics, and most of that is sour gas.