What's Holding Back Gulf Oil

Focus: ENERGY

A shortage of drilling rigs threatens to hold back Abu Dhabi's ambitious plans to expand oil production, writes April Yee of The National.

Operating companies and foreign partners in oil exploration projects privately complain of difficulty in securing rigs to develop resources in the emirate of the UAE with the most oil, Abu Dhabi.

At the same time, the order books of local rig builders are swelling with demand. Lamprell and Petrofac, two fabricators with UAE shipyards, had a combined order backlog of $10.9 billion by midyear, up from just under $9 billion in 2010.

Although near-term needs appear to be met—the Shah sour gasfield, the Upper Zakum redevelopment, and Shuweifat to the west have enough equipment on site or scheduled for delivery—long-term expansions in Abu Dhabi's pumping capacity could be constrained.

"There is a shortage that could potentially stifle efforts to increase production," said Grant Paterson, the business development manager for SPD, a drilling consultancy. "The rig is the key piece of equipment—without it you can't do anything."

Regionally, the Middle East needs to double the number of rigs from the current level of 351, said Chris Faulkner, the chief executive of Dallas' Breitling Oil and Gas. For unconventional projects such as fracking that require many wells, the regional fleet would have to expand by a factor of five to ten.

Hanging in the balance is Abu Dhabi's master plan to raise oil production capacity to 3.5 million barrels per day (bpd) from levels of about 2.8 million today.

The first phase of that is expected to be completed this year, and will bring the emirate to 3 million bpd, bringing the UAE in line with Iran and Iraq, the two countries that vie for the title of OPEC's second-biggest producer.

Gas production is also a top priority, with power generation needs growing by 11 to 12% a year because of energy-intensive steel and petrochemical plants.

The expansion is being carried out by multibillion-dollar projects ranging from extracting toxic sulfurous gas from Shah to building artificial islands to use as bases for drilling wells as long as ten kilometers.

OMV, Wintershall, and Korea National Oil Corporation are currently involved in exploration ventures in Abu Dhabi.