Dubai signs Shell, QP LNG import deal, as yet another Gulf market tries to escape gas crunch (page 1 of 2)

Global Insight Perspective

Significance

Shell and Qatar Petroleum (QP)'s Qatargas LNG venture has signed a 15-year LNG supply contract with Dubai, which will import 1.5 million t/y delivered throughout the peak-demand season, starting in 2010. The United Kingdom's Golar will supply a floating regasification vessel, to be moored offshore the emirate.

Implications

Dubai is following Kuwait's example in resorting to LNG imports to cover peak-demand shortages, amid declining domestic resources and what looks to be a medium-to-long term lack of sufficient gas-supply capacities in neighbouring Abu Dhabi. Qatar's moratorium on new gas development projects, and Iranian delivery and reliability problems leave it with little alternative.

Outlook

Amid gas demand growth on a par with that of China, traditional Gulf energy exporters have begun to suffer from a severe gas crunch with little near-term relief on the horizon. Only Qatar—and possibly Iran—stand out as notable exceptions, making some future LNG import deals in the region likely and casting exports, notably those from Oman, in doubt.

Dubai's Solution

Anglo-Dutch major Shell, along with its Qatargas venture partner Qatar Petroleum (QP), has agreed to supply Dubai with 1.5 million t/y of LNG starting from 2010, under a 15-year deal. The gas will be supplied to Dubai during the region's peak-demand season—generally falling between May and October—and will be partly sourced from Qatargas's liquefaction plants (most probably from the Qatargas IV train) in Qatar and partly from other facilities in Shell's LNG production portfolio, Reuters reported.

The United Kingdom's Golar has been awarded the contract to supply a floating storage and regasification unit (FSRU) vessel to the Dubai Supply Authority (DUSUP, Dubai's state-owned authority owning all gas pipelines and managing its gas purchases) under a long-term time charter.

DUSUP has signed a 10-year charter agreement, with a five-year extension option, whereby Golar will convert its LNG carrier Golar Freeze into an FSRU, with an LNG storage capacity of 125,000 tonnes and a regasification capacity of 480 mmcf/d (equivalent to the regasification of 3 million t/y of LNG).

Golar put the value of its 10-year contract at $450m and said that the conversion would be finalised and the ship commissioned for its Dubai mission by the beginning of the second quarter of 2010.

DUSUP will in the meantime construct a jetty for the FSRU's permanent mooring, as well as receiving facilities under the advisory of Shell. The onshore package, which according to LNG Unlimited is about to be tendered shortly, with awards expected in the third quarter of this year, is understood to consist of a 1,500-metre subsea gas pipeline, connections to the local pipeline network, and landing areas for delivery vessels, in addition to the permanent jetty at the Jebel Ali port. U.K. company Halcrow is undertaking the project consultancy for DUSUP and the Dubai Electricity and Water Authority (DEWA).

The Regional Situation

Across the Gulf region, strong oil-boom-fuelled economic growth, together with bulging populations and wasteful consumer patterns encouraged by high energy and fuel subsidies, has seen countries struggle to meet electricity demand in recent years.

While much of the past years' shortages have been due to long-delayed capacity investments—put off during the 1990s, when oil revenue was low and many states had to cut back spending—the recent years of high oil prices have led to investment being pumped into generating capacity and output in most of the Gulf, starting to catch up with demand.