Lukoil #346 (October-November 2019)

On October 15, 2019, within the framework of the state visit of Vladimir Putin, the President of the Russian Federation, to the UAE, Vagit Alekperov, President of PJSC LUKOIL, and His Excellency Dr. Sultan Ahmed Al Jaber, Group CEO of ADNOC, signed Accession to the Ghasha Concession Agreement with a 5% share. GETTING GHASHA LUKOIL ENTERS SOUR GAS PROJECT IN THE UAE F or the Russian company, this is the first project in the UAE that sets new goals to achieve in the fields of business management, modern technologies and international cooperation. Vagit Alekperov, President of PJSC LUKOIL: "LUKOIL has extensive experience in offshore fields, both independently and in consortia with other major international companies. We are glad to enter the project in the UAE with such a significant resource base and with such experienced partners. Joining this project is fully consistent with our strategy” . In addition to the Ghasha Concession agreement between PJSC LUKOIL and ADNOC, a tripartite framework Agreement on future cooperation in relation to the Ghasha concession was signed between PJSC LUKOIL, ADNOC and the Russian Direct Investment Fund (RDIF, sovereign fund of the Russian Federation). Growth Strategy Daily gas production in the UAE currently amounts to 8.5 billion cubic feet, but only 5 billion cubic feet reach the market. The rest is pumped back into reservoirs to increase production. However, the UAE’s domestic daily consumption of gas amounts to around 7.5 billion cubic feet. Hence the domestic market faces a deficit. Gas is currently imported over the sea and via pipeline from Qatar. The UAE has set a goal of no longer importing the “blue fuel” by 2030. The main way to achieve this is by investing in new projects, especially ones involving sour gas and non-conventional gas reserves (and decreasing the amount of gas pumped back into reservoirs). Sour Gas A significant portion of the UAE’s new gas reserves, including those of Ghasha concession, contains a high level of hydrogen sulfide and carbon dioxide. The Ghasha ultra-sour gas concession comprises of the Hail, Ghasha, Dalma, Nasr, SARB, Bu Haseer, Shuweihat and Mubarraz offshore sour gas fields in the Emirate of Abu Dhabi. State-owned ADNOC is operator of the Ghasha concession, while the other investors are ENI (25%), Wintershall DEA (10%), OMV (5%) and LUKOIL (5%). Production is expected to begin in 2022, reaching its peak (1.5 billion cubic feet of gas and 120 thousand barrels of oil and condensate a day) by around 2025. The project is technically complex because of reserves composition and reservoir structure. But investors are not spooked. Developing new technologies generally decreases their costs over time, while an increasing demand for gas gives hope for higher profits in the long-term. Technology of the Future Ghasha’s reservoirs are located in shallow waters to the West of the UAE’s capital, Abu Dhabi. They were discovered in 1968-84, but their complexity deterred development at the time. Thanks to newer technologies, investors have become interested in them again after 35 years. The Ghasha field is a collection of layered compartmentalized reservoirs with high sulfur gas and condensate (10-25% H2S). It also contains smaller volumes of light oil. The Hail reservoir contains large amounts of dry sour gas (15%H2S). It’s located at a depth of over five thousand meters below similarly- named oil field developed by ADOC JV. The Dalma zone is comprised of three reservoirs – Hair Dalma, Dalma and Bu Jafair. They are identical in consistency: light oil reserves (43° API) and sour condensate (25%H2S) are located side-by-side with lower- sulfur gas (5% H2S). Ghasha concession will be developed from 11 artificial islands (only one, Al Ghaf, currently exists) used instead of platforms for development drilling and gas/liquid separation. Sour gas and liquids then will be piped onshore in separate pipelines. The project also foresees construction of an onshore gas processing plant not far from the UAE’s oil capital, Ruwais. The Market Awaits Gas from the Ghasha concession will be directed to the UAE’s domestic market, its main recipient being the Abu Dhabi Water and Electricity Company (ADWEC). The natural gas will be enough to provide electricity to more than two million homes. Oil and gas condensate will be exported or ref i ned at t he Ruwa is oi l ref i ner y. The Sulphur lef t over from gas and condensate will be exported to Asia and North Africa. H.E. Dr. Sultan Al Jaber, UAE Minister of State and ADNOC CEO: “We are very pleased to partner with LUKOIL on this crucial project, which also marks the first time that we partner with a Russian energy company across our full value chain. The concession award, as well as the framework agreement, reflect the strong and strategic bilateral ties between the UAE and Russia and highlight the important role of energy cooperation in strengthening the relations between our two countries. LUKOIL joins our other value- add partners on the Ghasha concession, which is integral to our objective of enabling gas- self sufficiency for the UAE. The transaction is consistent with ADNOC’s targeted approach to engage with strategic partners that contribute the right combination of best-in- class expertise and advanced technology, market access or capital to unlockmaximumvalue from Abu Dhabi’s resources for our mutual benefit while delivering the greatest possible returns to the UAE”. 2 Business