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Feature: UAE holds back from Qatari-Saudi detente and plans for gas independence

Highlights

Qatari gas accounts for a third of total UAE consumption

Abu Dhabi targeting gas self-sufficiency

Nuclear power delay won't impact gas plans

Dubai — As Qatar and Saudi Arabia take initial steps to resolve a 30-month dispute that also involves the UAE and two other countries, leaders in Abu Dhabi are maintaining their distance while at the same time hammering out plans to lessen reliance on Qatari gas, even if flows from Doha are unlikely to stop, according to analysts.

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Saudi Arabia, the UAE, Bahrain and Egypt broke trade ties with Qatar in June 2017 over its alleged support for terrorism and interference in Gulf affairs. Doha has denied such allegations.

But Qatari foreign minister Mohammed bin Abdulrahaman al-Thani indicated earlier this month that talks between Doha and Riyadh have resumed without input from the UAE, which relies on Qatar to meet about a third of its gas consumption.

"A foreign guest asked me about the developments in the Qatar crisis and I answered him: half a step forward and two steps back. Maybe the problem is that Qatar is Qatar's own worst enemy," Anwar Gargash, the UAE's Minister of State for Foreign Affairs, tweeted on Monday.

Analysts believe the UAE-Qatari impasse will continue for the immediate future, despite any progress on the Saudi-Qatari front.

"We still think the boycott will stay in place for the next six months at least," said Torbjorn Soltvedt, principal MENA analyst at Verisk Maplecroft.

"Yes there has been progress between the Saudis and Qataris, on the UAE side there seems [talks] to be still fairly locked and don't think it is very likely the Saudis will move along without the UAE."

DOLPHIN ENERGY

Qatar, which first started supplying gas to the UAE in 2007, pipes 2 Bcf/d to the UAE and Oman through the Dolphin Energy subsea pipeline, in which Abu Dhabi-owned Mubadala Investment Company holds a 51% stake, with the remainder equally owned by Total and Occidental.

Supplies have remained uninterrupted since the fallout in June 2017.

"There has been a lot of pragmatism on both sides when it comes to oil and gas," said Soltvedt. "Qatar wants very much to be seen as a reliable source of energy."

In 2016, Qatar and the UAE signed an agreement to supply new gas to the UAE emirates of Ras Al Khaimah and Sharjah, a pact that has been implemented, Dolphin Energy said in reply to questions.

"So the 2016 agreement means we are supplying gas to RAK and Sharjah on a long-term 10-year agreement," said Dolphin Energy in written replies. "Previously, volumes of gas were provided through an interruptible agreement. There are no plans to increase volumes."

GAS SELF-SUFFICIENCY

But Abu Dhabi's rhetoric has begun to change of late, with officials from state-owned ADNOC talking of reaching gas "self-sufficiency" and even becoming a net exporter of the fuel in the long-term.

"Except for a few mid-term contracts signed between Dolphin Energy and Northern Emirates, the Dolphin pipeline gas has a low price (still below $2/MMBtu) for the UAE's customers," said Siamak Adibi, head of the Middle East gas team at consultancy FGE. "However, the 2017 political tension between the UAE and Qatar raised concerns over the long-term security of gas supply in the UAE, particularly in Abu Dhabi. As a result, ADNOC's new gas strategy has been redefined for the gas supply self-sufficiency."

Gas self-sufficiency in Abu Dhabi could be reached at the latest by 2024-25, when several new projects will inject some 3 Bcf/d to the emirate's gas production capacity, he added.

Already Abu Dhabi is adding new gas reserves. In November, ADNOC announced 58 Tcf of gas have been added, bringing its total to 273 Tcf of conventional gas as well as the discovery of 160 Tcf of unconventional recoverable gas resources.

NUCLEAR POWER

"Ideally with the Emirates they would be able to meet gas demand domestically but it is not something that is urgent and that's why we don't expect that sudden change in that front for the foreseeable future for the next five to 10 years," said Soltvedt. "They will continue to import gas from Qatar but in a long-term time frame that could change."

FGE's Adibi concurs.

Although lower gas consumption and the startup of renewable energy projects, as well as the much-delayed nuclear reactors, could mean that Abu Dhabi will face a large gas surplus, the UAE will still tap Qatari gas because it is affordable and contracts are valid until 2032, he said.

The UAE, which is the first country in the Gulf region to build nuclear reactors, was supposed to start producing nuclear power in 2017, but plans have been delayed. Emirates Nuclear Energy Corporation didn't reply to request for comment on the startup of the first reactor. Once all four reactors are in operation, nuclear power is expected to meet up to 25% of the UAE's power needs.

"While growth in gas production will now reduce the need for nuclear, coupling these new projects with the incoming nuclear and solar power projects, the country's chronic natural gas deficit is likely to become less of an issue, even with projections for significant upside in power demand," said Samer Mosis, senior analyst at S&P Global Platts.

--Dania Saadi, dania.el.saadi@spglobal.com

--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com