ADNOC aims for FID on Ruwais LNG by June, plans to double production

State-owned ADNOC Group intends to take FID on the Ruwais project, consisting of two 4.8 mtpa liquefaction trains, which ADNOC Gas would then acquire. Technip and JGC Corp were told to proceed with early construction activities as first deliveries of LNG cargoes from Ruwais are scheduled for early to mid-2028. 

By rushing to get the project to market, ADNOC wants to take advantage of the Biden administration’s pause on US LNG export approvals that pushed back many projects by at least six months, shipbrokers at POTEN & PARTNERS reckon. Texas, Louisiana and more than a dozen Republican-led states have filed a lawsuit to overturn the permitting suspension, with no success thus far.

“Both Qatar’s extension project and ADNOC’s Ruwais project have been strategically timed to help Middle Eastern LNG sellers gain market share – now that US projects are delayed,” said Irvin Yeo, Poten’s Singapore-based LNG business analyst. 

“Clear advantages of Qatargas’ and ADNOC’s projects are that they primarily rely on balance-sheet funding – as opposed to debt-financing of US projects – which adds certainty that these liquefaction plants will come online,” he stressed, but cautioned: “Middle Eastern LNG deliveries are predominantly sold indexed to the Brent oil price which some buyers find difficult to manage because of its volatility and how it is tied to geopolitical issues.”

Splashing out billions to tap challenging resources 

With a market capitalization of over $65.2 billion, ADNOC Gas ranks among the Top 20 oil and gas companies worldwide. Group chairman Sultan Ahmed Al-Jabar said at the company’s first annual general meeting since its IPO in March 2023, the signing of LNG export agreements worth $12 billion will secure ample returns in the coming years. ADNOC Gas reaped revenues of $22.7 billion and a net income of $4.7 billion in 2023, setting the foundation for growth as the company plans to more than double its LNG production capacity.

Free cashflow is of the essence as analysts estimate the company may need to splash out over $40 billion for the United Arab Emirates to reach natural gas self-sufficiency by 2030 due to the challenging nature its resources.

Development of the two LNG trains in Ruwais, with 9.6 mtpa capacity combined, is underpinned by a 15-year offtake agreement from ENN. The Chinese privately-held company envisages to buy at least 1 mtpa of LNG right after the liquefaction terminal enters commercial operation in 2028. 

Another multi-year offtake accord has been agreed with JERA Global Markets for deliveries from Das Island and potentially later from Ruwais, while a 15-year heads of agreement over 1 mtpa was reached with the German midstream energy firm SEFE Securing Energy for Europe with volumes to be primarily sourced from Ruwais. The Ruwais LNG project will run on ‘clean power’ and add to the UAE’s existing 6 mtpa LNG export capacity from Das Island – hence ADNOC strives to tap more of its domestic gas resources to ensure sufficient feedgas supplies. 

Come 2028, LNG cargoes are meant to be shipped from ADNOC’s new liquefaction facility to Zhoushan, the largest regasification terminal in China’s Zhijang province. But the planned 9.6 mtpa LNG export terminal at Ruwais will need an additional 1.5 billion cubic feet per day (bcf/d) of feedgas. 

For long, Abu Dhabi has been importing 19-20 bcf/d of gas from Qatar through the Dolphin pipeline as domestic gas production is technically challenging and expensive, hence analysts warn Abu Dhabi could face serious gas shortages if the Dolphin contracts are not renewed. 

Struggle to replace imported Qatari volumes 

With Dolphin contracts set to expire in July 2032, Abu Dhabi is hard pressed to develop its own resources and rely less on volumes imported from the neighbouring gas giant Qatar. In Wood Mackenzie ’s worst case scenario, the UAE could be short of natural gas as early as 2027 – long before the Dolphin contracts run out and pipeline gas imports from Qatar grind to an end. ADNOC is hence examining all options, even including ultra-sour gas reserves that were previously deemed too complex and expensive to develop.

The substantial upstream investment estimate of over $40 billion comes from WoodMac’s latest report on ADNOC. Having to tap sour gas resources will increase the costs of feedgas for the new Ruwais LNG plant and analysts also warned the simultaneous development of oil and gas could lead to pressure imbalances and some loss of ADNOC’s current oil output. 

“The risk of gas shortages pushes ADNOC to choose between its 5 million barrel per day oil target, its gas self-sufficiency goal and its LNG ambitions,” said Dalia Salem, Wood Mackenzie’s senior analysts, Middle East Upstream and her colleague Alexandre Araman. They reckon that achieving the company’s gas self-sufficiency target would require a “mega upstream investment,” as well as fast-tracked execution and strong operational performance.

“For Ruwais LNG to be competitive, controlling the upstream and plant costs is essential,” Salem stressed. In her view, this may well make ADNOC abandon the idea of Fujairah as the location of its new liquefaction plant and stick to Ruwais, which has established infrastructure is situated close to the gas fields and the country’s nuclear power station.

Fujairah is the end point of the Dolphin pipeline, in operation since 2007, when Qatargas developed a dedicated sector of the North Field to export 1.9 bcf/dto the UAE via a 600-kilometre subsea pipeline. On top of these pipeline gas import, the UAE occasionally bought LNG cargoes – but in additions ADNOC started to tap its expensive sour gas resources. Occidential in 2011 entered the Shah Gas Development project with a 40 percent stake and in 2015 first volumes were produced from the Shah field.

New upstream ventures are the answer to Abu Dhabi’s gas shortages – but they come at a high cost. The UAE’s Supreme Petroleum Council recommends ultra-sour gas, unconventional and gas cap resources as well as rising use of associated gas. In particular, the Ghasha development is deemed critical for attaining self-sufficiency, with a target to produce 1 bcf/d of gas before 2030. But factoring in the necessary sulphur handling equipment to manage sour gas and low domestic gas prices, mean costs could come to at least $20 billion. 

The Shah gas Development is another key venture which can potentially boost ADNOC’s total upstream capacity to 1.85 bcf/d from currently 1.45 bcf/d. Other potential projects include large untapped unconventional gas resources at Ruwais Diyab as well as gas caps and some conventional resources. 

The timelines slipped for many of these projects, while others were simply called off: High cost led to the recent cancellation of pre-construction service agreements for Hail and Ghasha, two ultra-sour offshore fields from which ADNCO had been targeting 1 bcf/d of gas sales. “ADNOC is moving on all fronts via mega-development projects, ambitious production targets and IOC partnerships. But the complex and expensive nature of these resources has derailed progress with escalating costs and final investment decision delays,” analysts commented. 

Fear about the West’s zeroing out on fossil fuels

Arab upstream companies are concerned about the West’s intention to end support for fossil fuels abroad. Sultan al-Jaber, the head of ADNOC said “zeroing out” on hydrocarbon investment would lead to a loss of millions of barrels of oil per day – vastly more than the supply shock during the 2021/22 global energy crisis. 

“Now is the time to point out that long term underinvestment in oil and gas has made a difficult situation even worse,” he stressed, referencing the energy supply chain shocks following the Russian invasion of Ukraine. Russia has been by far the world’s largest exporter of fossil fuels, but a reorientation of global energy trade in the wake of the Ukraine war, left it with a much-diminished position. Russia’s share of internationally traded energy, which stood at close to 20 percent in 2021, is forecast to falls to 13 percent in 2030 the International Energy Agency (IEA) 's Stated Policies Scenario, while the shares of both the United States and the Middle East are bound to rise. 

Reacting to the supply gap, the UAE has been quick to increase its production capacity for oil, gas and refined products. But the emirate is also venturing into clean energy: “It is not oil, or gas, or solar, or wind, or nuclear or hydrogen,” Jaber said. “It is all of the above.”