Sweet and sour

Sour gas extraction has traditionally left a bitter taste in the mouth for oil and gas companies, given the high costs associated with its production. But recent advances in technology have seen the resource become a more attractive proposition – and Abu Dhabi’s Shah Gas Field is set to capitalise.

“After many decades of cheap oil and gas, the population of UAE is slowly coming to the realisation that higher prices are headed their way.”

When toil comes to the desert, there's usually a good reason for it. As temperatures soar past 50˚c before 11am each morning, and shade and water are as scarce as an impoverished investment banker, the UAE's Arabian Desert is no place for the faint-hearted. The unforgiving, remote swathe of sand that cuts across the Middle East is a barren landscape where only a few hardy souls survive, let alone thrive.

Yet some 180km southwest of Abu Dhabi, in a hitherto nondescript spot of this Middle Eastern backwater, lies the Shah Gas Field. Containing in excess of 200 trillion cubic feet of gas, this is one of the largest gas basins found anywhere on earth. And while such vast reserves, particularly in this energy-rich, energy-hungry corner of the world, are usually highly developed outposts funnelling fossil fuels to markets all over the globe, the Shah Gas Field is something completely different. Despite being viewed by the Emirate as an important find that is key to its continuing economic growth, work is yet to begin on gas extraction thanks to one vitally critical factor - much of the Shah Gas Field is sour. In fact, the field is universally considered to be one of the most sulphur-rich natural gas fields ever found.

Irrespective of this, the financial potential of such gigantic, untapped reserves far outweighs the logistical and technical difficulties that have thus far constrained the field's development. In July 2008, the Abu Dhabi National Oil Company (ADNOC) and ConocoPhillips thought they had reached a conclusive deal when the former agreed to a 60 percent stake in the project, with the American oil giant undercutting its rivals to secure the balance; but in the first quarter of 2010, ConocoPhillips pulled out of the project for reasons as yet unconfirmed (although it has been suggested that the escalating cost of the project, combined with the potentially dangerous and technically challenging work that will be required, were the reasons behind the multinational's retreat). Since then, the sour gas has remained unexploited.

ADNOC has alternatively been touting around for new partners and stating that they were keen to progress, alone if needed. In the wake of ConocoPhillips' pullout, four frontrunners have emerged as potential key partners - Shell, Exxon Mobil, Occidental and Total - all four of which have the required expertise and know-how to partner with ADNOC. But all four have also displayed a hesitance, fuelled primarily by cost factors, to quote anything close to the figures that initially secured the contract for ConocoPhillips. Indeed, some sources believe that ConocoPhillips undercut rival bids by billions of dollars back in 2008. ADNOC are understandably keen to secure a partnership on similar terms, but industry watchers believe that such favourable figures are unlikely to be forthcoming from current frontrunners.

"The partnership with ADNOC was something that ConocoPhillips secured back in 2008, but they wavered for a very long time and didn't ever really commit and, ultimately as we have seen, withdrew in 2010 because of their own economic difficulties," says Samuel Ciszuk, Senior Middle East Energy Analyst for IHS Energy. "Their spot is now open and even though ADNOC has said that they might move ahead independently, few from within the industry believe they have the ability to project manage technically advanced projects such as this because they have no experience of dealing with sour gas in this way. They need someone to learn from."

Sulphur, so good

Despite the dangers and difficulties of extracting sour gas with such high sulphur content, Abu Dhabi sees its Shah Gas Field as key to its continued economic expansion. While its well-documented oil reserves have seen the Emirate boom on the global stage, the gas it is able to extract will be used almost exclusively for the domestic market, and is the reason for ADNOC's continued involvement. It had been anticipated that Abu Dhabi Gas Industries Ltd (Gasco) would proceed with the project aided primarily by Fluor as their lead technology partner, but the inherent dangers of sour gas recovery present a multitude of health and safety challenges that are largely unheralded.

Any natural gas that contains sulphur content in the 30 percent range is extremely dangerous to extract. The merest sulphur escape is likely to prove fatal for field workers, and while hydrogen sulphide-rich (H2S) gas has previously been produced before, very few have contained the intense concentration of sulphur found at the Shah Gas Field.

"This sour gas poses a very challenging scenario for the companies involved," admits Ciszuk. "It is extremely corrosive. It is very toxic and you need to basically treat it and strip out all of the toxic impurities too, which are less toxic but still extremely corrosive. The key challenge with sour gas is the fact that there are a lot of impurities that are tough to deal with, and they need to be sequestered so they do not remain in the gas. And in the case of the gas in the Shah field, the degree of sourness of the gas means that out of roughly one BCF of wellhead gas production - which the Shah Project is aiming for after treatment - just over half of that will end up as sales gas."

Such a combination of technical difficulty, high-risk potential and reduced profit margins obviously proved too much for ConocoPhilips, leaving only a select handful of contractors and companies able and willing to consider proceeding in lockstep with ADNOC.

"Almost half of the extracted product will consist of different impurities, and some are very hard to deal with because of their toxic and corrosive makeup," continues Ciszuk. "And they need to do something with them. You can't just have a huge mountain of something so toxic or corrosive laying about. The chief problem here will be handling the large amounts of sulphur that will be brought to the surface. I believe this is one thing that ConocoPhilips appears to have miscalculated - they thought they were going to make money out of the sulphur, because sulphur itself can be used in first lines of production and so on."

The reality, however, is less clear-cut. Profit margins in both sulphur and gas inhabit a bracket far below that of oil, and while it makes some fiscal sense to invest in the complicated technology required to elicit financial gain from what is, in effect, one of Abu Dhabi's richest resources, recent industry developments have complicated the issue, reveals Ciszuk.

"Sulphur production has been growing quite significantly, both globally and in the Middle East, especially over the past two years," he explains. "For instance, the huge North Field offshore from Qatar (and the South Pars Field, which is the same field but reached from the Iranian side) is slightly sour. It's nowhere near as sour as Shah, but it's still a massive field producing very high quantities of gas and associated sulphur. It means that Qatar and Iran have raised their sulphur production significantly and as a result, the market is suffering a glut; after all, there's only so much sulphur the world needs. So this has now become a rather unattractive market to be involved in. Other companies are saying 'we won't make any money off the sulphur; sulphur prices won't be interesting; we need to have margins'."

For Ciszuk, it all comes down to technology. "The degree of toxicity and the corrosive impact the sulphur creates a need for very specialised equipment," he says. "You need to have an almost fully sealed production chain because there cannot be even the slightest form of leakage anywhere. People would die. It's very expensive; you need to use a lot of alloys everywhere rather than normal metal and steel, so it is a complex procedure in so many ways - complex in attempting to control costs; complex technology-wise; and complex in how to monetise the procedure and sequester all those impurities.

Such complexities no doubt caused ConocoPhillips to withdraw, but a welter of subcontractors and subsidiaries have been awarded contracts worth billions of dollars since then, which serves as an indication of just how appealing the project is to those that possess the relevant expertise. Saipem, of Italy, have been awarded the contract for the sulphur recovery unit and liquid sulphur transport pipeline, while Samsung Engineering has secured the rights to administer the utilities and offsite facilities of the project. The gas-gathering contract has been awarded to a joint Spanish and Indian consortium between Tecnicas Reunidas and Punj Lloyd. "These subcontractors and service providers will come in everywhere," says Ciszuk. "There will be construction companies building the roads and railways that will connect the field and transport the sulphur to treatment plants far away. Service companies will come in and do everything, including drilling the field to some of the actual work that is undertaken by subcontractors for oil companies."

Undoubtedly, the main skill that the leading companies looking to partner with ADNOC provide is unrivalled technical know-how. "These guys basically know how to do the absolute toughest things in gas extraction; the rest they subcontract to different players, different service companies," says Ciszuk. "These guys will come in on a project management basis, even though the larger players have exceptional experience in managing lots of complex projects simultaneously."

What the frontrunners offer

Each of Shell, Total, Occidental and Exxon Mobil possess the technical expertise and financial muscle to prove viable partners for ADNOC - and all have, at one point or another, been seen as 'the most likely' to proceed. But picking a winner at this stage is impossible.

Exxon has recently sought to promote its Controlled Freeze Zone (CFZ) technology, claiming this flagship H2S solution to be less expensive than current, existing technologies. Exxon believes the CFZ solution would be ideal for the Shah project because it "increases its attractiveness, especially for offshore and remote applications". The company has also claimed that the solution currently meets natural gas pipeline quality and safety requirements, requires no solvent regeneration or downstream dehydration facilities and has no upper restrictions on H2S or CO2 content.

Total have perhaps the strongest history in dealing with sour gas projects, having been the first ever oil company to develop sour gas when it installed the world's first sweetening unit at the Lacq Field in southwestern France in 1957. Now, 60 years later, the global giant is understandably bullish about the great technical strides it has made, particularly when it came to developing its MDEA - an amine that can eliminate H2S and extract CO2. Total has also developed a hybrid solvent formulation that consists of a physical solvent and an amine, and is reported to be more effective at stripping mercaptans from sour gas, a process that has been dubbed 'Sprex'.

Occidental have plenty of vested interest in the Middle East, with more than a quarter of the company's oil and gas production originating from the MENA region. In 2009, the company was producing 254,000 barrels of oil equivalent per day from its operations in Oman, Yemen, Libya, Qatar and Bahrain, and is currently a partner in the Dolphin Project - a leading transborder natural gas project with Abu Dhabi's Mubadala - a partnership that has been strengthened by the company's collusion on redeveloping the Bahrain field. Such a grounded history in MENA energy projects makes Occidental naturally interested in the possibilities that lie at the Shah Gas Field, but the company is the only one of the four frontrunners to explicitly state they would not be interested in picking up the deal on the terms agreed with ConocoPhilips. "We have consistently said over the last two years that the terms of the contract that was negotiated between ConocoPhilips and Abu Dhabi are not attractive to us," Dr. Ray Irani, Chairman and CEO of Occidental, told Oil & Gas Middle East last year. "However, if the government wishes to approach us with different terms, we'll look at them."

Finally, Royal Dutch Shell, whose involvement in the Middle East dates back many decades, is likely to be involved in any high-level discussions regarding the project. Shell already partners ADNOC in a number of oil and gas processing projects throughout Abu Dhabi, and is a 15 percent shareholder in Gasco. In terms of presence, economical might and connections in the region, Shell is understandably the favourite for the project.

Technically speaking, the company has also ramped up its expertise in dealing with sour gas via the acquisition of Cansolv Technologies Inc., one of the leading names in the sour gas industry. Cansolv's SO2 Scrubbing System, which Shell now owns, is a proven regenerable amine technology that is ultra-effective at removing sulphur dioxide from combustion gases, and has proved its efficacy in numerous other refining and smelting tasks, too. "We want to further develop technology that has the potential to clean up contaminated gases and flue gases - predominantly SO2 solutions in the first instance," says Shell Global Solutions International President Greg Lewin. "With the addition of Cansolv's technology to our portfolio, we have enhanced our capability for the treatment of various compositions for syngas - from coal gasification, contaminated natural gas and refinery streams - and further differentiated our technology."

Abu Dhabi is evidently in no rush. Finding the correct partner is more important than merely finding the funding and expertise to help kickstart the project. However, while Abu Dhabi and the UAE are not exactly short on financial muscle, further procrastination on the issue cannot be countenanced for too much longer. "When the Shah Field is developed, it will be the most sour field in the Middle East to be in production, and ADNOC is keen to press ahead sooner rather than later because it needs gas," says Ciszuk. "The UAE has a domestic gas shortage and despite the sour nature of the Shah Field, it represents one of the few areas where the Emirate can grow domestically.

"This is why there is such an opportunity for a company to get in here. The successful partner will be seen as a global leader in extremely sour gas production if they can pull this off, and it would very likely open up further projects in the UAE and elsewhere."

An end in sight?

Had ConocoPhilips not gotten cold feet, the chances are that the next 12 months would have seen some tangible movement on the project. As it stands, few experts, including Ciszuk, can really say when the project will finally get off the ground. "Right now there still appears to be a bit of a deadlock," he says. "There is certainly regular talk with the frontrunner companies, and there might even be occasional feelers being sent out from other IOCs with relevant experience to ADNOC. But there is only a very small, select group of companies that can take this project on, and only a few people within these companies able to sit and talk numbers with ADNOC."

The current impasse is a result of unique economic conditions in Abu Dhabi. They do need, at some point, to exploit their gas reserves, but for now there is little urgency while oil flows so freely and profitably. "If ADNOC and Abu Dhabi had been truly desperate, they would have already accepted other offers and moved forward," believes Ciszuk. "They do have long-term thinking here, and have been forward-looking when securing imports from Qatar through the Dolphin Pipeline in the middle of the decade. They are not cornered. They are looking at a number of different opportunities and have already swallowed their pride and become a gas importer, which is quite important because it is hard to see Saudi Arabia doing the same thing."

After many decades of cheap oil and gas, the population of the UAE is slowly coming to the realisation that higher prices are headed their way, because the subsidies that Abu Dhabi and the other Emirates have levied for the domestic markets are going to be unsustainable - particularly after the heavy costs associated with the Shah Field are taken into account.

"Emiratis are used to cheap gas being produced in the country. Hence, it makes it extra painful when the gas price effectively goes up. Production costs have traditionally been around US$1.00 or lower per million BTU in Abu Dhabi and elsewhere in the Middle East," says Ciszuk. "Since they have been purchasing gas from Qatar, prices have been around US$1.55, which was already a massive increase for the population. However, it is still within the one/two dollar range, so is palatable. With Shah, we are most likely going to see production costs push that figure up to around US$5.00 per million BTU. It's a massive, massive change, and they are going to have to get used to it. One coping mechanism for ADNOC could be to point to ConocoPhilips' withdrawal on cost reasons as a justification for the coming commodity price hike."

This could still all be two or three years away, though. ADNOC have yet to formally reconvene talks with the four potential frontrunners, even though all four will no doubt be keen to get the ball rolling as soon as possible, because large upstream IOC opportunities of this scale are few and far between in the Middle East right now.

Where does all the sulphur go?

Safely dealing with the errant and excess sulphur that comes with the Shah Field is one of the sternest challenges facing ADNOC and its partner. Sulphur is extremely dangerous and volatile, and cannot be overlooked or underestimated. Indeed, the sulphur problem is what many industry experts believe led to ConocoPhilips' withdrawal.

Original feasibility studies of the project concluded that the ideal sulphur solution would be to pipe it in molten liquid form to a processing plant in Ruwais, some 200km from the Shah Field. Such an option would prove almost foolishly hazardous - sulphur needs to be kept between 115˚C and 152˚C to remain stable in molten liquid form - so ADNOC began investigating the feasibility of transporting the sulphur via rail, an option it will now pursue in the form of the Shah Habshan Railway, a 264-kilometre line that runs from Ruwais port to the field.

Sulphur and CO2 removal

Sulphur exists in natural gas as hydrogen sulphide (H2S), and the gas is usually considered sour if the hydrogen sulphide content exceeds 5.7 milligrams of H2S per cubic meter of natural gas. The process for removing this from sour gas is commonly referred to as 'sweetening'.

The primary process for sweetening sour natural gas is quite similar to the processes of glycol dehydration and NGL absorption. In this case, however, amine solutions are used to remove the hydrogen sulphide. The sour gas is run through a tower, which contains the amine solution. This solution has an affinity for sulphur, and absorbs it much like glycol absorbing water. There are two principle amine solutions used, monoethanolamine (MEA) and diethanolamine (DEA). Either of these compounds, in liquid form, will absorb sulphur compounds from natural gas as it passes through. The effluent gas is virtually free of sulphur compounds, and thus loses its sour gas status. Like the process for NGL extraction and glycol dehydration, the amine solution used can be regenerated (that is, the absorbed sulphur is removed), allowing it to be reused to treat more sour gas.

Although most sour gas sweetening involves the amine absorption process, it is also possible to use solid desiccants like iron sponges to remove the sulphide and carbon dioxide.

In order to recover elemental sulphur from the gas processing plant, the sulphur-containing discharge from a gas sweetening process must be further treated. The process used to recover sulphur is known as the Claus process, and involves using thermal and catalytic reactions to extract the elemental sulphur from the hydrogen sulphide solution. In all, the Claus process is usually able to recover 97 percent of the sulphur that has been removed from the natural gas stream. Since it is such a polluting and harmful substance, further filtering, incineration and 'tail gas' clean-up efforts ensure that well over 98 percent of the sulphur is recovered.

Gas processing is an instrumental piece of the natural gas value chain. It is instrumental in ensuring that the natural gas intended for use is as clean and pure as possible, making it the clean burning and environmentally sound energy choice. Once the natural gas has been fully processed, and is ready to be consumed, it must be transported from those areas that produce natural gas, to those areas that require it.

Source: NaturalGas.org