When?Conoco­Phillips announced last April that it was ending an agreement with Abu Dhabi National Oil Company to produce sour gas from the Shah field, one of the toughest hydrocarbon deals in the Middle East was back on the table.

The US company signed an agreement in 2008 to develop Shah, 180km south-west of Abu Dhabi city, beating competition from Royal Dutch Shell and Occidental Petroleum. The total project cost was estimated at about $10b.
But as Conoco’s withdrawal illustrates, Abu Dhabi, the United Arab Emirates’ capital, faces one of the trickiest gas development dilemmas in the region.
Gas is vital to the diversification that the UAE hopes will decrease reliance in the long term on hydrocarbons and?boost?employment opportunities.
But the supply-demand equation for gas is particularly tight. This is because of spiralling electricity consumption, caused by a growing population and demand in the petrochemical, steel and aluminium industries, combined with the need for substantial reinjection of gas into oilfields.
Almost half of Abu Dhabi’s daily gas output, or 3.3bn cubic feet a day out of a total of 7.8bn cu ft, is reinjected. Power demand in the UAE is surging at roughly 2 gigawatts a year.
But Shah gas is difficult and costly to extract as it has a high content of hydrogen sulphide.
Samuel Ciszuk, senior Middle East and North Africa energy analyst for Global Insight, says Conoco and Adnoc agreed a price of about $5 per million British thermal units for treatment of the Shah gas, “which obviously proved to be too low”, he says.
An energy expert working in the UAE downstream sector says that Abu Dhabi was “shocked” by the $5 per million Btu original terms set by Conoco. But these prices were still not enough to keep the third-largest U.S. oil company in the game.
At the same time, Abu Dhabi has grown used to gas supply budgets at the $1.25 per million Btu it pays Qatar for the use of the Dolphin pipeline. This price is estimated to cover only a quarter of the putative price of sulphur extraction from Shah.
Photo: ADNOC PROJECT: Shah would pump around 1 billion cubic feet per day (cfd) of raw gas, which after processing would give 540 million cfd of gas fit for consumption.