UAE bets on alternative energy, local gas production

10 January 2018 16:35 Source:ICIS

UAE’s domestic gas supply to rise

Nuclear and renewables challenge LNG

After a considerable drop in the UAE’s LNG imports in 2017, the country will further reduce its reliance on imported gas and LNG with the start-up of alternative energy projects and the development of local gas reserves.

The Abu Dhabi National Oil Company (ADNOC) said on Tuesday, 9 January, it had awarded a Front End Engineering Design (FEED) contract for the company’s giant ultra-sour gas project in the northwest area – consisting of the Hail, Ghasha and Dalma fields – to UK’s Bechtel and UAE’s TechnipFMC.

“The project, in the northwest offshore area of the Emirate of Abu Dhabi, could meet 20% of the UAE’s gas demand by the second half of the next decade,” ADNOC said in a statement, adding that the project may produce more than 1 billion cubic feet (bcf) of gas/day.

The UAE’s demand for electricity is expected to rise in the coming decade.

Between 2010 and 2015, annual growth was 7%, with a lot of that rise due to industrial and residential sectors, according to Lucas Schmitt, LNG analyst at consultancy Wood Mackenzie.

While the development of local gas reserves will take time, the country expects to see the launch of two reactors at the Barakah nuclear power plant in 2018, which is a delay from the initial timeline of 2017.

Another two reactors are expected to start up by 2020, according to BMI Research, a business consultancy.

Jaafar Altaie, managing director at Dubai-based Manaar Energy Group, said that the complex will provide at least 10% of power production by 2020 and 15% by 2022. “Solar energy will take another 5% by 2020,” he said.

BMI Research predicted an even larger influence from nuclear energy, saying that it will help reduce the share of gas in the power mix from 98% in 2017 to 67% in 2021.

Dubai is also constructing coal-fired generation capacity and is investing in renewables.

In 2017, the UAE imported 900,000 tonnes less LNG than in 2016, according to LNG Edge.

The drop could have been the result of a substantial reshuffling of trade patterns following the crisis with Qatar in June and the UAE’s efforts to diversify its energy sources.

LNG plays a balancing role in the UAE, providing diversification and security of supply with access to the international market, Schmitt said.

The UAE will likely have to make a choice in favour of floating storage and regasification units (FSRUs) over onshore import projects.

Development at the Fujairah LNG terminal has been postponed because of budget constraints and it is still not clear when the budget will be allocated.

But Uniper, which is working on the Sharjah FSRU, said last month it aims to make a final investment decision on the project in 2018.

Emma Richards, senior oil and gas analyst with BMI Research, believes LNG’s role in power production is not a very attractive option for the UAE.

LNG imports drop

Last year, a significant drop in LNG imports in peak summer months and over the third quarter was compensated by higher storage withdrawals, according to Schmitt.

“Since 2015, DUSUP has used the Margham gas storage facility more extensively,” he said.

Anglo-Dutch Shell delivers LNG to Dubai’s Jebel Ali port within a contract that runs to 2025.

Before the crisis with Qatar, volumes were delivered from the Qatargas 4 project, but Shell has since had to find alternative sources of LNG for Dubai.

Supply was optimised with volumes from both the Atlantic and Pacific basins, including Nigeria, Angola, Australia and the US.

“The UAE’s pipeline imports from Qatar within long-term gas sales agreements remained unchanged at around 1.9bcf/day, but we believe interruptible flows have been reduced or halted,” said Tom Quinn, Dubai-based upstream analyst at Wood Mackenzie.

Quinn believes the long-term gas demand trend in the UAE is upwards, despite the drop that will be caused by new nuclear production.

In 2016, the annual growth of gas demand was almost 6%, according to BP statistics.

Quinn said that there is potential for more domestic gas to be sent to the grid.

“Abu Dhabi has some gas cycling projects. If these stop, more gas may go to the grid, at the cost of lower condensate production,” he said.

The UAE has 215 trillion cubic feet of proved gas reserves, the fourth largest in the Middle East. ekaterina.kravtsova@icis.com

By Ekaterina Kravtsova