UAE's well-timed LNG expansion [Global Gas Perspectives]
The UAE last month approved the construction of what will be the country’s biggest LNG export terminal, having successfully curbed its domestic gas demand in recent years to free up supplies for sale abroad.
National oil company ADNOC took a final investment decision (FID) on the construction of a 9.6mn tonne/year facility in the industrial hub of Ruwais. The greenlight was followed up with agreements in July between ADNOC and BP, Mitsui & Co., Shell and TotalEnergies, giving each foreign company a 10% stake in the project.
Moreover, ADNOC has also signed several new long-term sales contracts, including for the delivery of 1mn t/yr of LNG to Shell and 0.6mn t/yr of LNG to Mitsui. These deals bring Ruwais LNG’s committed production capacity to 70%. The state-owned company also awarded a $5.5bn engineering and construction contract in June for the plant to a joint venture consisting of Technip Energies, JGC Holdings and NMDC Energy.
The project is expected to come on stream in 2028, joining the UAE’s existing LNG facility on Das Island, which has a capacity of almost 6mn t/yr. The terminal started operations back in the late 1970s, with a third train added in 1994.
A project that stands out
The decision to go ahead with the Ruwais project stands out for several reasons.
Firstly, despite a global LNG supply crunch over the last few years, so far the only major projects to pass approval have been in the US and Qatar. Even though such tight market conditions provided an opportunity for smaller LNG exporters to expand and new players to enter the sector, it is clear that the largest established exports were best-placed to capitalise on the global shortage of supply.
Secondly, the UAE chose to build its second LNG terminal in Ruwais despite the risk of shipping in the Strait of Hormuz, the narrow channel between Iran and the Musandam governorate of Oman. Iran has frequently threatened to close down the strait over the years, and tensions are high in light of the Israel-Gaza conflict. Previously the UAE had planned to build its second LNG terminal in Fujairah, providing access to the Gulf of Oman east of the Strait.
ADNOC has stressed that gas will be vital as a bridge fuel in the energy transition, helping reduce global coal-related emissions. But it has gone even further in burnishing the project’s green credentials. The terminal will have an electric-powered liquefaction system with access to renewable energy supply, which can reduce its operational emissions.
Parallel to expanding the UAE’s own LNG capacity, ADNOC is also building up its global LNG portfolio. In May, the national oil company acquired a 11.7% stake in the first phase of NextDecade’s Rio Grande LNG project on the US Gulf Coast, while also striking a 20-year offtake deal for 1.9mn t/yr of LNG from the project’s fourth train. NextDecade took an FID in July last year on Rio Grande LNG’s first phase, which will consist of three trains with a combined capacity of 17.5mn t/yr. A greenlight on the fourth train is expected by the end of the year.
Also in May, ADNOC bought a 10% equity position at the Area 4 concession in Mozambique’s Rovuma Basin from Galp. The concession contains the operational Coral South floating LNG (FLNG) unit, as well as the planned Coral North FLNG and onshore Rovuma LNG facilities.
Freeing up gas for export
The project is only possible thanks to the UAE’s successful efforts in recent years to reduce domestic gas demand. The country’s gas consumption has risen fast over most of the last few decades, driven by the expansion of its power sector. By 2000, its demand was growing faster than production was increasing, leading the country to start importing supplies three years later from Oman via the Al Ain-Fujairah pipeline. The UAE gained access to Qatari gas thanks to the commissioning of the Dolphin gas pipeline in 2006, which brings North Field gas from Ras Laffan to Taweelah on the UAE’s west coast. Even this was not enough, and in 2010, the UAE imported its first LNG cargo, while still maintaining high levels of LNG exports.
In a bid to achieve gas self-sufficiency, however, the UAE has been growing its nuclear and solar power generation in recent years. Between April 2021 and March this year, the country has launched four South Korean-built nuclear reactors, boasting a combined capacity of 5,330 MW. Meanwhile, its solar capacity reached 5,925 MW at the end of 2023, according to the International Renewable Energy Agency (IRENA), following the launch of the 2.1-GW Al Dhafra project last November. This is up from a mere 135 MW seven years earlier. Wind power is also gaining traction, following the launch of the country’s first farms in 2023, with a combined capacity of 103 MW. All told, the UAE aims to have 14 GW of clean energy capacity, mostly solar, up and running by the end of the decade.
As a result, gas-for-power generation, which more than doubled between 2000 and 2010, dropped for the first time in 2020, and fell much more substantially in 2021 and decline has continued. Gas-for-power demand reached a 13-year low in 2023, with nuclear and renewables contributing around 40% of the country’s electricity that year, versus only a negligible share just a few years ago.
At the same time, the UAE has been expanding investment in gas production. In November 2022, ADNOC announced a five-year investment plan worth $150bn to enable an “accelerated growth strategy” for oil and gas. At the heart of this plan is sour gas development. In November, ADNOC took an FID on the Ghasha Mega project, the world’s largest source gas development, consisting of the Ghasha, Hail, Hair Dalma, Satah, Bu Haseer, Nasr, SARB, Shuwaihat and Mubarraz gas fields. It is expected to yield 1.5bn ft3/d (15.5bn m3/yr) of gas before the end of the decade – which is the equivalent of just under 30% of the country’s total output last year.
Other key projects in the pipeline include the TotalEnergies-operated Ruwais Diyab onshore gas field, which lies in the Ruwais Diyab unconventional gas concession. Ruwais Diyab is on track for launch next year and should flow 1bn ft3/d of gas by 2030 and around 2bn ft3/d (20.7bn m3/yr) at its peak in 2035.
There have also been a steady stream of new gas discoveries in the country over recent years, including the Jebel Ali discovery, containing 80 trillion ft3 of gas, and the smaller Mahani find, in 2020. There have also been important discoveries in Abu Dhabi’s offshore Block 2, estimated to have 2.5-3.5 trillion ft3 of recoverable gas.
Should the UAE’s upstream and power generation projects continue on track, the country should become self-sufficient in gas supply sometime in the latter half of the decade. But it will still continue importing Qatari pipeline gas for longer, as its supply contract does not expire until 2032. These imports currently amount to 2bn ft3/d (20.7bn m3/yr).
The country should therefore have plenty of spare gas to carve out a larger stake in the international LNG market. And the FID is well-timed, as the market is expected to grow increasingly competitive over the coming years as more supply arrives on the stage.