Gas storage opportunities ripe amid abundant global supply
Hatem El Mosa, CEO of Sharjah National Oil Company, outlines the opportunities in gas storage under current market conditions
The time is right for ramping up gas storage capacity in the region and the UAE is no exception. The concept is certainly not new to the country – Dubai already has a significant gas storage business and Sharjah National Oil Corporation (SNOC) has been considering building a facility at the Sajaa asset for many years. So why now? Plentiful supply and attractive pricing.
A few years ago, gas was in shortage and what was available was very expensive at rates reaching $20 per million BTU in some instances. But that has all changed, with the commodity in abundance today worldwide and prices in a range of $4.00-$8.00 per million btu. At the end of 2017, there were 671 underground gas storage facilities in operation around the world. Only three new facilities were commissioned in that same year however - in China, Turkey and the US. In fact, since 2015, and despite the continued increase in natural gas production and demand worldwide, there has been a relative decline in the growth of storage facilities in mature markets like North America and the EU, where capacity has been stagnating and even declining in certain countries. By contrast, the storage market is expanding in the Middle East (predominantly in Iran so far) and Asia-Oceania.
It is armed with this knowledge and the established indigenous gas production capability in the emirate of Sharjah, that SNOC commissioned a pilot test for a gas storage facility in 2017. This was promptly followed with a technical feasibility study and front end engineering design (FEED) in 2019, enabling the company to award a $40 million contract for the Moveyeid gas storage surface facility project to Petrofac last month. SNOC now plans to implement the project in phases with surface facilities to be commissioned by the end of this year and drilling to commence in 2023.
Sharjah’s gas plans are very much part and parcel of the UAE’s gas strategy and its storage ambitions should prove to be a natural enhancement. The main impetus for gas storage, both globally and regionally, is not to produce volumes for export, but rather to smooth out variations in seasonal demand, which in the UAE triples in the summer months. Gas storage can also act as a safe strategic reserve for any production supply disruptions or as a gas harbor during demand erosion such as what is happening during this Covid-19 pandemic.
To get the maximum efficiency of utilization of gas storage and gas pipeline system, an open access system to capacity needs to be established. Such system already works efficiently in Europe and North America markets. While the UAE is not there yet, looking forward in a decade or so, it is realistic to assume that the UAE could materialize into such an advanced market.
New Era of Exploration
Successful and continuous exploration for new gas is a critical piece to this ambition in the UAE. The country has set a target to be self-sufficient by 2030; ideally, this means being able to have a diversity of abilities to produce, export, import and use domestic gas when needed. It is already in good shape with a diverse portfolio of gas sources – importing through the Dolphin pipeline, producing domestically and with an ability to export LNG from Abu Dhabi.
The first onshore Sharjah discovery of gas in 37 years in January of this year – via a partnership between SNOC and ENI – and the projected exploration phases will enhance this drive to self-sufficiency and demonstrate a true new cycle in exploration and production in the emirate. The Mahani natural gas and condensate field is expected to be on stream by the end of 2020 with an initial production of 50 million cubic feet a day. This recent success will lead to additional drilling and upstream exploration of both onshore and offshore areas, some of which are complex and require state-of-the-art seismic technology and interpretation methods, which we are now privileged to have at our disposal.
Driving all this investment in gas exploration of course is the continuous growth in demand for power generation, which has averaged around 5% a year in the UAE and, in times of stronger economic growth has reached 10%. As gas continues to be available and abundant, nascent demand from the industrial sector will continue to expand and add to the overall call on gas.