Global Insight Perspective | |
Significance | Saudi Arabia has had over six years to consider the route, but is only now formally voicing its objections to the US$3.5-billion Dolphin project, which is tabled to supply gas to the U.A.E. from later this year. |
Implications | The Dolphin route looks uncontroversial given the current delineation of oilfields in the offshore area, suggesting that Saudi is using the pipeline to gain leverage in the ongoing dispute over other contested areas - Shaybah oilfield and Khor al-Ubaid included. |
Outlook | With the U.A.E. highly dependent on Qatari gas for planned industrial and power projects, Saudi Arabia has picked a sensitive pressure point to make its case. Such bullying tactics have succeeded in the region before, although the involvement of foreign investors, combined with greater political activism by the U.A.E., makes this a more risky strategy that could well attract outside political support. |
Dolphin Dynamics
Saudi Arabia has so far declined to comment formally on its reported letter to the Abu Dhabi National Bank, which set out its objections to the US$3.5-billion Dolphin gas project running from Qatar to the U.A.E. The bank is one of a number of financiers of the project.
Dolphin Energy, which includes Occidental, Total and the Abu Dhabi-owned Mubadala, claims it has heard nothing of the objections, which could put a spanner in the works of its 3.2-Bcfd pipeline, due to come onstream later this year (see Gulf State: 12 July 2006: Dolphin Denies Reports of Saudi Rumblings on Qatar-U.A.E. Gas Pipeline).The gas is intended for use in a number of forthcoming industrial, power and desalination projects, with further Qatari supplies sought in future to buttress the emirate's energy needs.
The Saudi unwillingness to comment publicly, combined with the reported silence towards the project operators, adds to the sense that the Gulf heavyweight is looking at the Dolphin pipeline as a potential source of leverage in its ongoing land dispute with Abu Dhabi over ownership of offshore and onshore areas. Earlier this year, Abu Dhabi made its strongest claims yet to parts of the Shaybah oilfield, which lies in Saudi Arabia according to a 1974 bilateral agreement, although the U.A.E. argues that this was signed under duress and not then ratified on its part. The U.A.E. is also laying claim to the Khor al-Udaid corridor that would provide a landlink between Abu Dhabi and Qatar, and included those areas on an official state map issued in early 2006 (see Gulf States: 6 January 2006: Abu Dhabi Ups Ante in Border Dispute with Saudi Arabia).
Outlook and Implications
Saudi Arabia's reported "objections" are a blatant attempt to slap down resurgent U.A.E. activism after the death of Sheikh Zayed bin Sultan al-Nahyan last year and the succession of the more headstrong Sheikh Khalifa. In this instance, the Dolphin gas feed represents an attractive source of political and economic leverage, although one that is unlikely to be upheld in any international court of law or arbitration, given the current division of offshore oilfields and therefore the Dolphin route.
But that is not really the point, with Saudi Arabia able, in theory, to hold up completion and operations at the Dolphin pipeline, while its "valid concerns" are aired with the U.A.E. authorities. With its finger on the gas feed, Saudi Arabia can then watch while the economic and investment impact of its actions take shape, providing additional pressure for the U.A.E. to come to terms on other issues of its choosing. These are likely to include a final settlement to the Khor al-Udaid area and the division of Shaybah oil production, which is currently estimated at some 500,000 b/d.
Nevertheless, whether Saudi Arabia has the political will to push this far remains to be seen. The Dolphin project boasts some strong international backers on the finance and project side, which could yet see Saudi Arabia's will for confrontation take an early hit. If the international clamour gets too great, Saudi Arabia is almost certain to swallow its objections. Weighed against this, however, is its effective spoiling role played in similar projects to Kuwait and Bahrain, giving Sheikh Khalifa some pause for thought, at least, before he goes back to the cartographers.