Dolphin Energy project costs exceed $4bn

The final cost of the Middle East’s largest gasline, the Dolphin Energy project, has exceeded $4 billion (Dh14.6bn) but the company believes such costs are low when compared to other major hydrocarbon ventures in the region. Although the costs have exceeded the preliminary estimates of over six years ago, the project value could have surpassed $12 billion had it been launched last year, because of rising construction costs, a Dolphin official said.

“You can say we were lucky… when we launched the project a few years ago, we invited tenders for the contracts and subcontracts… at that time, materials and construction costs were relatively low. If you calculate this project in current costs, then I am sure it could cost us over $12bn,” a Dolphin Energy official told Emirates Business at the World Future Energy Summit in Abu Dhabi on Wednesday.

In a statement last month, Dolphin Energy said the project to transport gas from Qatar to the UAE and Oman involved activity along the “entire gas value chain”.

“It included the development of gas fields, the creation of new industrial zones and projects, fuelled by the power generated from gas piped from those fields.”

The project involved the construction of a 364-kilometre subsea pipeline that traversed the Gulf across the shores of Qatar, Saudi Arabia and the UAE.

Gas began flowing into Taweela just outside Abu Dhabi city last year at a rate of 1.6 billion cubic feet per day and supplies are expected to surge to two billion cubic feet per day this year.

They include 788 million cubic feet per day for the Abu Dhabi Water and Electricity Authority, 730 mmsf/d for Dubai Supply Authority, 141 mmsf/d for the Union Water and Electricity Company and 200 mmsf/d for Oman Oil Company.

The official, who requested anonymity, said the 12-inch pipeline has a spare capacity for an additional 1.2 billion cubic feet per day.

“It can transport 3.2 billion cubic feet per day but reaching its full capacity is a matter of supply not demand… the most crucial matter in this project is how to secure supplies… in case those customers want more gas at a later stage. Dolphin has to negotiate a new contract with Qatar Petroleum (QP) to get the extra 1.2 billion cubic feet,” the official said.

He said the pipeline, which consists of nearly 30,000 joints, has an operational life of between 40-70 years while the gas supply contract with the clients extended for 25 years. “There is an optional extra period of five years… this means the contract could be for 30 years, but the pipeline could last longer… in case the contract is extended further, then there will be a need for a second pipeline.

“Once the contract expires whether in 25 or 30 years, we will still have the processing facilities built near the Qatari North Field. These facilities could then be taken by QP.”

Qatar’s giant offshore North Field, with an area of more than 6,000 square kilometres, is the world’s largest reservoir of non-associated gas, estimated at more than 900 trillion cubic feet, making the country the third largest in gas reserves after Russia and Iran.

The UAE has the fifth largest gas deposits but most of them are sour gas and associated with oil, making their separation a costly process. By sharply increasing gas output, the UAE has also to boost oil production, which is against its policy of complying with Opec output agreements.

The UAE is one of the fastest growing countries in terms of gas demand in the Middle East due to a rapid expansion in power and industrial projects and its gradual switch to gas as a cleaner source of energy. From around 21.2 billion cubic metres in 2000, the UAE’s gas demand surged to 34.1 billion cubic metres in 2005 and is projected to soar to 42.9 billion cubic metres in 2010, to 51.9 billion cubic metres in 2015 and nearly 63.2 billion cubic metres in 2020, according to the Ministry of Energy.

Dolphin Energy is 51 per cent owned by Mubadala Development Company, on behalf of the Government of Abu Dhabi – and 24.5 per cent each by Total of France and Occidental Petroleum of the United States.