STEADY STREAM

UAE, Sharjah 2017 | ENERGY | FOCUS: GAS

The combination of a drop in oil prices and an increase in energy demand has created an opportunity to revitalize gas production in Sharjah, stabilizing gas, revenue flows, and the economy.

Because gas production has taken a dive in recent years and local consumption has grown exponentially, the demand-and-supply gap is widening and posing a small but nonetheless present threat to energy security. Sharjah now covers less than 10% of its own demand at peak consumption times. The result has been a higher price, particularly in the north of the UAE. But the new projects cover the demand for Sharjah and the Northern Emirates.

In the decade after the UAE's independence in 1971, gas development started. While the UAE as a whole is the world's seventh-largest gas producer at 50.2 billion cbm per year, and holds the seventh-largest gas reserves at 6 trillion cbm, Sharjah itself is a minor producer of condensate and natural gas. In the UAE, natural gas production and regulation is carried out by individual Emirates. And so, the Sharjah National Oil Corporation (SNOC), wholly state owned, was set up in 2010 to take care of Sharjah's gas, with its subsidiary Sharjah Liquefaction Gas Company. SNOC took over operations from BP when its contract ran out. But after a decade of underproduction, strong investments are meant to ensure a continuous stream of cash flow to maintain the gas flow in Sharjah.

Gas production is currently benefiting from the fall of oil prices; investments in gas are suddenly more attractive, and Sharjah is taking full advantage of it. Several projects are in progress. In 2016, Zora gas field, operated by Dana Gas in conjunction with Ajman, started production, delivering 1.1 million cbm per day and hoping to climb to 1.7 million in the coming years. An LNG import project, in agreement with leading European energy company Uniper, is scheduled to start in 2019. A gas sales agreement was recently signed with Sharjah Electric and Water Authority (SEWA), creating critical mass to develop the project not only in Sharjah but also the entire northern UAE market, with possible collaborations with Abu Dhabi and Dubai. Another project is a 3D seismic survey for gas exploration, taking into account the difficult geology in the northern region of the UAE. Finally, a gas storage project has been considered, which—while a high initial investment—would ensure energy security for the long run.

Sharjah is also rebalancing its ratio of production for domestic consumption and export. Previously, all LPG production was sent to Japan; however, since the beginning of 2017, Sharjah has been redirecting production to satisfy national consumption. All the while, it still imports and exports LNG and has international pipelines with Qatar and Oman, ensuring that any sudden fall in national production could be offset by imports, at the same time stabilizing its energy situation and not putting all its eggs in one basket, proverbially speaking.
Sharjah's gas production is part of the wider UAE natural resources dilemma: diversification is the end game, but lack of investments would leave the country vulnerable to a strong surge in prices, which would considerably harm its economy once it becomes a net consumer. Production should remain important in the short and medium term, partly because the dependence on gas is not as strong as the dependence on oil, and because the money it brings is needed to ensure diversification is properly led.

Since the new projects support the energy security and self-reliance of the UAE, they are strategically important in addition to their economic significance. In light of the tense geopolitical and security context in the region, the UAE is preparing for a worst-case scenario of isolation and complete self-sufficiency, for which energy plays an integral part. Sharjah's reinvestment in gas production, complemented by the processing plant in Hamriyah Free Zone, will ensure the Emirate's production can meet its consumption for years to come.