Abu Dhabi looks offshore to boost gas output

By Verity Ratcliffe, Natural Gas Daily

Abu Dhabi is focusing on its offshore acreage as part of plans to boost gas production because the emirate needs more of the fuel for enhanced oil recovery and power generation.

"We are committed to supplying more resources to maintain and even increase the supply of gas for power purposes. We also need sufficient gas to inject into our reservoirs to sustain production," Qasem al-Kayoumi, manager of Abu Dhabi National Oil Co.’s (ADNOC’s) offshore division, told Interfax Natural Gas Daily.

"We will always need more gas because there is a shortage of the fuel in the country, but we are committed to supplying whatever we can from the offshore [fields]," he said.

ADNOC wants to further evaluate the extent of its offshore oil and gas resources. It recently awarded a four-year contract to OMV and Occidental Petroleum to carry out seismic, drilling and engineering work. The companies will explore, appraise and potentially develop several undeveloped oil and gas fields off Abu Dhabi’s northwest coast, including the Ghasha and Hail fields.

While ADNOC insists that its exploration plans are largely on schedule, it expects to have fewer rigs in operation this year than last year, said Kayoumi.

"We are releasing some rigs that were not really adding good value benefits – on a temporary basis of course – to make sure that we are on budget and in line with our [production] cost per barrel," he told delegates at the Middle East Petroleum and Gas Conference 2016 in Abu Dhabi on Tuesday.

ADNOC aims to bring down its oil production costs from $10 per barrel to $3-5/bbl by the end of this year. Production from offshore projects will be at the upper end of the range because of the higher level of complexity and costs involved, said Kayoumi.

To achieve its target, ADNOC is taking an aggressive approach in price negotiations with rig operators. "We have already initiated a major cost reduction programme […] We are more aggressive in the evaluation of the profitability of [new] projects," Kayoumi said. The company has also negotiated with its existing rig operators.

ADNOC has restructured its operations and refocused its strategy. "The current focus we have in ADNOC is to build efficiency and add value [given] the current low oil price," said Kayoumi. "This requires rethinking and looking into our current business model to deal with this situation, which is ‘business unusual’."

ADNOC wants to lock in the cost savings it has made so that its business will be more profitable if oil prices rebound.

"We are determined that these initiatives will last – even if oil prices come back again in the future. We would like to maintain this aggressiveness so that when oil prices come up it will be an additional plus," Kayoumi added.

Oil price threat

While Abu Dhabi is able to produce oil and gas from many of its onshore fields at relatively low prices, ADNOC should not become complacent if oil prices rise, said Kayoumi.

Fields offering low-cost gas production that could potentially be developed are in short supply. Some of Abu Dhabi’s planned onshore non-associated gas developments are particularly threatened by low oil prices.

Shell’s decision to pull out of the Bab sour gas field development in January has cast doubt over the viability of Abu Dhabi’s more complicated non-associated gas developments in its onshore acreage, as well as the future of the Bab project itself.

Shell cited the low oil price as the reason behind its decision. Gas production and processing from Bab was set to be costlier than elsewhere because of the field’s high sulphur content.

Abu Dhabi will need to make its new onshore gas developments commercially feasible or move ahead with its offshore gas developments soon if it is to help meet the rising demands of the emirate’s power sector. ADNOC is expected to invite bids for two offshore gas field developments in the near future, according to local reports.

Abu Dhabi Water & Electricity Co. (ADWEC) expects power demand in the emirate and its connected areas to grow by 26.3% between 2015 and 2020.

Although ADWEC is expecting to commission its first nuclear power plant in 2017, most of its electricity will still be produced from gas.

Please contact Matt.Shelton@interfax.co.uk for a free trial to Natural Gas Daily or Global Gas Analytics