BP is in talks with Abu Dhabi to build a green energy project that would produce hydrogen from natural gas and store carbon dioxide in the Gulf emirate’s oil wells.

The novel scheme could provide clean electricity to the emirate and at the same time help Abu Dhabi to find a solution to a gas shortage in the Gulf, which threatens to undermine the rapid economic expansion of the oil-rich city state.

The carbon-capture and hydrogen venture is similar to a billion-dollar venture planned for Scotland that failed to secure financial support from the Government. However, the new technology has excited interest from the Abu Dhabi Future Energy Company, part of Mubadala, the emirate’s investment organisation, which is keen to put money behind new energy technologies.

Abu Dhabi is struggling to produce enough natural gas to keep pace with a frantic growth in demand. Gas provides the fuel for power generation and water desalination in the United Arab Emirates. However, investment has lagged behind the pace of economic growth, according to Wood Mackenzie, the oil consultancy, which has a continuing research project on the region’s gas resources.

“Abu Dhabi is short of gas and it is particularly difficult in Dubai, where there is only one producing gasfield. It is insufficient to meet demand,” Colin Lothian, of Wood Mackenzie, said.

According to the consultancy, the UAE consumes 1.9 billion cubic feet per day but will need six billion cubic feet per day by 2020 if it is to meet the power and water needs of an expanding population. Moreover, Dubai’s property boom is causing acute problems as demand for gas surges by 35 per cent in the summer, when air conditioning reaches peak consumption. Wood Mackenzie believes that the gas shortage will constrain economic growth if a solution is not found.

“One of the alarming aspects of this is that there are few alternatives to increasing domestic gas supply. Qatar has a moratorium on further gas developments to 2010,” Mr Lothian said.

Dubai is heavily reliant on its sister emirate Abu Dhabi for gas supplies, but the latter has been forced to import fuel from Qatar. Much of Abu Dhabi’s gas is earmarked for reinjection in oil wells to maintain pressure and oil flow.

“Abu Dhabi is struggling. How long will it continue to bail out Dubai?” Mr Lothian asked.

If successful, BP’s carbon-capture technology would free up natural gas that is reinjected into oil wells. Instead, carbon dioxide would be injected into the wells, providing a triple benefit of enhanced oil-well output, hydrogen for power generation and safe storage of carbon.

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