The UAE's Dolphin Energy Ltd has signed binding agreements to supply natural gas from Qatar to two Abu Dhabi-owned power and water companies under a 25-year deal that its managers hope will provide the spark for a regional gas grid.
Under the agreements, Dolphin, a partnership between the UAE government's Offsets Group, Total and Occidental Petroleum, will supply gas to the Abu Dhabi Water and Electricity Authority (ADWEA) and the Union Water and Electricity Co (UWEC) in the emirate of Fujairah, the company said in a statement.
The gas sales agreements are the first concrete development that marks Dolphin as the first cross-border energy deal in the Arabian Gulf.
It entails development of gas reserves from Qatar's huge North Field, their processing onshore at Ras Laffan in Qatar and transportation by subsea pipeline of up to 3.2 billion (bn) cu ft per day of processed gas first to Abu Dhabi and then on to the UAE emirates of Dubai and Fujairah.
Talks between Dolphin and Dubai utilities have so far failed to produce agreement on the gas price acceptable to the Dubai authorities. Dubai receives subsidised gas from Adnoc, the state-owned Abu Dhabi national oil company, and has so far balked at paying a premium for Dolphin gas.
'This agreement is an essential step in cementing Dolphin's role as a leading Middle East gas developer,' said Sheikh Hamdan bin Zayed, the UAE's deputy prime minister and minister of state for foreign affairs. 'ADWEA has always been a key element in the development of the Dolphin Gas Project. Signature of this contract is a very important step in supplying the UAE with a secure source of energy,' added Sheikh Hamdan, who is also chairman of Dolphin. Neither the amounts of gas contracted nor the price were disclosed.
The contract with UWEC provides for the supply of gas also for 25 years for its new power and desalination plant in Fujairah on the UAE's east coast. The gas will flow through a dedicated export pipeline which will make landfall in Taweelah. Oman will provide the gas to Fujairah until Dolphin comes on stream in 2006.
It will then be pumped via existing land lines to al-Ain and thereafter through a 182km, 24-inch-diameter Dolphin pipeline to Fujairah, to be completed this December.
The contract will succeed the short-term agreement for initial provision of gas by Dolphin from Oman.
'We now have the makings of a regional gas grid. In future, we will even be able to supply Oman with gas for its own future projects, as and when required,' said Sheikh Hamdan.
Anthony Boon, director of project finance for Dolphin Energy, told a conference in Oman the Japanese Bank for International Cooperation showed keen interest in contributing to project finance for the $4bn project to supply Qatari gas to the UAE's market.
Boon said that in recent talks in Tokyo, the Japanese had also made clear that Japanese companies should be involved in offtake of gas produced on Dolphin's behalf. Although this was not a problem, he said, such offtake would have to be arranged on strictly commercial terms.
'JBIC said they would be happy to offer us funds so long as we commit to supply liquids to Mitsui or some other Japanese importer, so that we are selling liquids to Japan. We are happy to do so but cannot offer preferential terms,' Boon said.
Boon said the aim was to secure a 70:30 debt to equity ratio to cover project development costs and listed a set of prospective financing targets that averaged around $2.9bn in total finance.
Boon said some $700- to $900-million (m) might be available in JBIC funds together with $300- to $500-m in Japanese-based bank financing that JBIC would expect to see in place as a result of offtake agreements ensuring Japanese purchases of gas supplies in the form of LPG and other products.
Although Dolphin is primarily aimed at delivery of natural gas from Qatar to the UAE, it will also produce 100,000 bpd of condensate and 4,000 tonnes per day of LPG.
Boon also said he is looking to secure between $300- and $700m from Islamic institutions and the same amount from regulatory bodies and capital finance sources.
Emarat accord
Dolphin Energy, has also signed a memorandum of understanding with Dubai's Emirates General Petroleum Corporation (Emarat) to explore the commercial viability of joint gas ventures in the northern emirates, the company has said in a statement.
The deal does point to the possibility of an eventual deal in the so-far stalled negotiations on a gas sales agreement between Dubai and Dolphin Energy.
'Both parties will evaluate potential benefits from joint use of existing gas distribution assets, collective gas sales and marketing and future gas transportation systems,' the statement said. It added the two companies were also 'in the process of finalising detailed agreements for Emarat to undertake the operations and maintenance of Dolphin's new Al Ain-Fujairah gas pipeline.'
Dolphin's 142-km (80-mile) pipeline from al-Ain in Abu Dhabi to a new power and desalination plant in the emirate of Fujairah, is due for completion before end 2003.
It will carry natural gas from Oman to Fujairah until Dolphin gas supplies from Qatar become available.
The Dolphin Project involves development of gas reserves in Qatar's North Field and transportation by undersea pipeline of 3.2bn cu ft per day of gas to Abu Dhabi and on to Dubai starting in 2006. But Dolphin has so far not been able to reach agreement with Dubai on the price of the Qatari gas to Dubai, which receives gas at subsidised prices from Abu Dhabi's state oil company Adnoc.
Dolphin CEO Ahmed al-Sayegh admitted at a recent conference in Dubai that negotiations with Dubai were taking longer than expected but he added he was confident gas sales agreements would be reached very soon with the three main utilities in Abu Dhabi, Dubai and Fujairah for Dolphin gas.
