Shell, Oxy lead race for UAE sour gas project

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DUBAI, Nov 8 (Reuters) Royal Dutch Shell and U.S. Occidental Petroleum are the front-runners to win a multibillion-dollar project to develop sour gas reserves in the United Arab Emirates, industry sources said on Thursday.

The project is one of the biggest this year available to international companies competing for limited access to the Middle East's oil and gas fields.

''Shell and Oxy are still in the race,'' said one industry source. ''They're in a sort of final within a final. It may be one or the other that wins, or they may work together.'' Shell and Oxy have the edge over the other two bidders for the project, U.S. majors Exxon Mobil and ConocoPhillips, sources said. The four companies submitted bids to state-run Abu Dhabi National Oil Company (ADNOC) in August.

ADNOC was expected to decide on the winner of the project by the end of the year, a source at an oil major said.

ADNOC officials contacted by Reuters declined to comment.

Once a winner is selected for the project, ADNOC was expected to move ahead quickly as it needs to bring online new gas supplies to meet spiralling domestic demand.

Record oil revenues have fuelled economic expansion and boosted demand for gas from the power sector and heavy industry in the United Arab Emirates.

The winner will take a 40 percent stake in the project, while ADNOC will hold the rest.

The bidding round was the second for the sour gas reserves after the UAE revised the terms of its initial tender in April that also included the Bab field.

The project to develop both fields had an estimated cost of around billion. It is not clear what the cost of developing the Shah field alone will be.

The complexity of developing both fields led Abu Dhabi to split the tender. The UAE has said the Bab field would be developed later.

The UAE holds the world's fifth-largest gas reserves at nearly 214 trillion cubic feet and is the world's sixth-largest oil exporter.

The gas has a content of around 30 percent of potentially deadly hydrogen sulphide, making it tougher to produce than conventional gas reserves.

REUTERS BJR HS1613

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