Anticipating a growing demand for natural gas in the Middle East, the UAE and Qatar established Dolphin Energy Ltd. in March 1999, and were later joined by Oman, Total SA and Occidental Petroleum. Dolphin Energy is to produce, supply and transport natural gas from a dedicated section of Qatar's North Field to customers in Abu Dhabi (the UAE capital) and to Dubai, the UAE's commercial hub. The overall investment in the project makes it one of the largest energy-related ventures ever undertaken in the Middle East. Dolphin Investment Co. (DIC), which is wholly owned by Abu Dhabi, holds 51%; Total, 24.5%; and Occidental Petroleum, 24.5%. (Occidental replaced Enron Corp. as a partner prior to Enron's demise.) Following major gas discoveries in Qatar and the country's arrival at the forefront of the global gas-supply picture, it became obvious that these gas reserves could be tapped to fuel the development of the region, and notably of the UAE, as Qatar and its 850,000 inhabitants only need a fraction of these hydrocarbon riches. Because of the physical properties of existing gas reservoirs in the UAE (mostly associated gas rich in impurities), the landing costs of Qatari gas is very competitive with indigenous development of gas reservoirs. Despite the fact that Abu Dhabi has the fifth-largest gas reserves in the world, exceeding 200 trillion cubic feet, the country is hoping to use this domestic gas for its injection program to sustain and increase oil production. The Dolphin Energy program comprises upstream and downstream operations: Dolphin Energy's mandate is to construct by 2006 a 48-inch, 4,000-kilometer-plus pipeline between Qatar and the UAE, and initially produce, process and transport through this pipeline 2 billion cubic feet (Bcf) of gas per day. The pipeline's design capacity allows for throughput to rise eventually to 3.2 Bcf per day. The engineering task being undertaken is therefore a considerable one, with three separate and distinct elements involved. The first requirement is to drill and extract sufficient quantities of wet gas from the Qatari North Field's gas-bearing Khuff zone, which lies at 10,000 to 12,000 feet. The field is the largest single nonassociated gas field in the world. This wet gas will be piped some 80 kilometers to shore at Qatar's Ras Laffan, where a gathering and processing plant will be built. The plant will strip out condensate, liquid petroleum gas (LPG), ethane and sulfur, leaving the lean gas ready for transport by pipeline to the UAE. Dolphin Energy's first two appraisal wells in the North Field were completed and successfully tested in 2002. The first, NFD 1, spudded in 40 to 50 feet of water and was completed at 11,018 feet in April 2002. The second, NFD 2, was completed in June 2002 at 10,331 feet. Meanwhile, work on the front-end engineering design (FEED) contract for wellhead, production platforms, pipelines to shore, and the processing plant was completed in May 2003. The gas, once treated onshore, will be transported via the main 48-inch pipeline from Qatar to a riser platform offshore Abu Dhabi. The original design capacity will be 3.2 Bcf per day. Downstream, equipment will have to be installed onshore UAE to receive and distribute the gas. The first Dolphin Energy project to go onstream is the Al-Ain-to-Fujairah gas pipeline, which was completed in December 2003, and commissioned in January 2004. Before the Qatari gas is put in the system around 2006, Oman is to play the role of supplier. For Oman, being involved in such a project is the guarantee to see gas flows inverted when the country's needs are overtaking domestic production. The success of the project resides in the fact that international cooperation was successfully established for a project that should radically modify the industrial and energy landscape of a region that has witnessed unprecedented growth. It also lies in the successful marketing of the gas before it even started flowing. For Ahmed Ali Al Sayegh, Dolphin Energy chief executive officer, "We brought in partners that are technically very capable. It also gave us the chance to design and implement a very effective EPC (engineering, procurement and construction) structure, which is now in its final stages. We were also able to commence spending real money on this project long before the business actually came together-we started spending money before we had a binding sales agreement. "Last year, we started putting together the pipeline to Oman, as the country will be a client of Dolphin in the long run, but first a supplier. This was decided before we had finalized the agreement with Oman, our customers in the UAE or even had secured rights of way for the pipelines." Later on, a series of memorandums of understanding were signed, guaranteeing the commercial viability of the project. The first agreement, in June 1999, secures deliveries from Oman to the new 656-megawatt power and water plant and 100-million-gallon-per-day desalination plant currently under construction by Union Water & Electricity Co. (UWEC) in Fujairah on the east coast of the UAE. The agreement provides for potential uptake by Oman of between 300- and 600 million cubic feet of gas per day, and it includes a provision for Dolphin Energy's cooperation with Oman on new industrial and commercial initiatives as a result of such investment. Gas deliveries will be assured by Oman Oil Co. (OOC) to Dolphin Energy at the UAE-Oman border. Further gas purchase and sales agreement have been signed with the Abu Dhabi Water and Electricity Authority and should be signed in the near future with the Dubai Supply Authority, confirming Dolphin Energy's commercial raison d'etre. The management of the gas infrastructure within the UAE was given to Dubai-based retail operator Emarat, also managing the northern emirates gas network. Rashid H. Al Shamsi, Emarat general manager, says, "We recognize that Dolphin will be the strong player that will dominate the gas supply market in the northern emirates in the years to come. Those emirates will have an abundance of gas, in turn allowing power-generation requirements to be met, notably for the industrial sector." Emarat has a network that is currently underutilized due to lack of natural gas. "We therefore have the expertise and experience, and we became a natural partner of choice for Dolphin to operate and manage the existing infrastructure when it decided to build its own pipeline. We also discussed the possible creation of a regional major natural gas marketing and distribution company, using the agreement on the infrastructure operatorship and management as a starting point." The financing of such a groundbreaking project has also triggered much interest as the financial engineering has drawn on original solutions. Estimated to bear a maximum project cost of around $4 billion, the project expects to borrow $2.5- to $2.8 billion. Dolphin's Ali Al Sayegh explains, "We will finance the integrated project, not pieces of it, and that will make it attractive to banks." The financing will be multi-tranche and, although it hasn't been finalized yet, should incorporate a bank lending part possibly assured by Japanese banks, of which Japan Bank for International Cooperation (JBIC) could be the principal lender. With Japan's keen interest in securing long-term supplies of LPG and condensate and the major role played by Japanese companies amongst EPC bidders, the country should be ensured to play a major role. The participation of Middle East lenders, including Islamic banks, should be ensured too, although their relative lack of financial depth and experience in major-project financing will make necessary the recourse to other financing avenues. A syndication of international banks under JBIC's lead could provide an extra $300- to $500 million while regional and conventional banks, alongside the regional capital markets, could be tapped for up to $700 million, while an extra $500- to $550 million could be accessed through senior shareholder loans, thanks to Total and Occidental Petroleum's equity stakes in the project. Finally, a further $100- to $250 million could be secured via other government financing agencies. Beyond its financial impact and the role it will play in developing regional capital markets, this project is also earmarked to modify the regional energy picture, creating the first interconnected gas grid between three countries and allowing the resources of one nation to benefit the industrial development of two others. And, it is set up in a way that could be expanded to benefit other countries. Potentially, the project could quench more of the region's gas deficit in the years ahead, but such prospects are dismissed by Dolphin as being groundless at this stage of the project's life. Customers like Pakistan (with whom a memorandum of understanding was signed that later was stalled), Bahrain or even Yemen could appear along the way. But this is too prospective to be formally discussed. However, as Dolphin's Ali Al Sayegh puts it, "Through the cooperation with Oman, we proved that we already have the experience to make gas available easily for export. Our pipeline, at 3.2 Bcf of throughput capacity, is larger than what we have contracted." Emphasizing the groundbreaking dimension of the project and its potential impact on the region's development, he adds, "Dolphin is one of the key infrastructure projects of this century that will maintain the UAE and neighboring countries in the major league of developing and emerging countries. "We will change the way gas is monetized forever in this region and will offer opportunities to all investors to invest in the future of this part of the world."