The ‘Dash to Gas’ in the Middle East
By Anonymous
A RAPIDLY GROWING POPULATION and industrialisation across the region require vast quantities of power. Proven natural gas reserves of the Middle East and North Africa (MENA) are estimated at 81.23 trillion cubic metres, some 45% of the world’s total, which would suffice global demand for another 100 years at the current production levels. For the MENA region, a more aggressive exploration of largely ‘untapped’ gas resources will provide new supplies of low-cost feedstock for power generation, water desalination plants and energy-intensive industries, such as petrochemicals, aluminium smelters, steel and cement. Regional governments are thinking how best to diversify their economic base, while maintaining higher levels of crude oil exports. Hence, natural gas offers additional energy resources both to fuel new downstream industries and cater for robust domestic consumption for decades to come. Gas reserves, production and consumption have all risen in recent years (see Table below). According to Natural Gas Market Review 2007 published by the International Energy Agency, the Middle East is “the fastest expanding gas producing areas”, with regional growth of 6.4% during 2000-05. That compared favourably with 4.4% and meagre 0.1% growth, respectively, for the developing and industrialised OECD regions in the same period. Concurrently, the region’s share in global production rose to about 17% in 2006, from 10.6% in 1996, a figure that should increase substantially over the medium-term. The new producers like Egypt, Libya, Oman and especially Qatar – the world’s largest liquefied natural gas (LNG) exporter – are spearheading regional expansion.
Contributions from established producers (Algeria, Iran and Saudi Arabia) are also considerable. An expanding oil production capacity in Saudi Arabia, the UAE and Libya will cause an increase in associated-gas supplies in the region. Saudi Arabia intends to boost gas resources by 50 trillion cubic feet by 2011 through developing new fields in the Rub al-Khali (Empty Quarter), the Red Sea and the northern Nafud basin. Whilst Qatar has implemented an $83bn energy investment programme, 75% of which is embarked for gas processing projects. In Oman, the current five-year hydrocarbons development plan (costing $13bn) is heavily geared towards its gas sector. Abu Dhabi Gas Industries, a subsidiary of Abu Dhabi National Oil Company, has invested $6bn to boost domestic production. With soaring energy prices and access to advanced technologies, the National Oil Companies have the capacity to implement key upstream projects. A report published by Arab Petroleum Investments Corporation (Apicorp) estimates regional energy capital investments between 2008 and 2012 at $490bn.
Of this sizeable amount, the gas supply chain (upstream and downstream) accounts for 45% or $220.5bn. The ou sector (including integrated refinery-petrochemical facilities) and oil-fired power plants will absorb 41% and 14%, respectively, of cumulative investments. Saudi Arabia, Iran and Qatar account for almost half of planned investments, with Saudi Arabia topping the country ranking with $105bn. However, the ongoing turbulence in global credit markets since last summer and ever-rising engineering, procurement and construction costs may or will affect the highly leveraged downstream and utilities projects within the private sector. Last year, the number of projects fell by 10% in all MENA countries, except for the UAE, according to Apicorp’s annual survey.
Regional consumption – driven by low subsidised gas prices – is growing at 7.4% a year compared with global demand growth of only 2.6%. This gave MENA region an 11% share of world demand in 2005, up from 6% in 1990. The dash to gas reflects industrialisation drives to reduce over-reliance on the petroleum sector and a ‘switch’ to natural gas in the energy mix, particularly for electricity and water desalination, where the IEA estimates gas usage is soaring by 10% a year, more than twice the OECD and non-OECD averages.
The Gulf is expected to invest some $100bn on the utility expansion over the next decade, thereby underpinning gas demand. By 2020, around 60% of the region’s power and desalination capacity could be powered by natural gas, compared to today’s figure of 46%. Industries, commercial and the residential sectors each eat up 14%, respectively, of total gas supplies. While gas re-injection to maintain and boost oil production accounts for the remainder of gas demand.
Government subsidies and price caps make the Middle East’s energy costs among the lowest in the world (see below). This, however, places a huge fiscal burden on the Treasury, especially in Iran and Saudi Arabia, among others.
The region’s share of global exports in 2005 was 16%, equivalent to 150bn cubic metres of gas, on the IEA database. Qatar’s LNG expansion and planned projects in Algeria, Egypt and Iran should lead to higher exports in the coming decade. But Qatar’s moratorium on further gas development from its giant North Field until 2010 will cause a three-year delay in new supplies to the markets. Moreover, vigorous domestic demand is competing for future feedstock allocations. This could, in fact, cancel some export-oriented projects in pipeline (see Table left).
The IEA thinks: “Exports [in MENA] are unlikely to keep pace with production in the longer term, as the rewards of world market prices are balanced against the higher financial rewards of oilfield re- injection and economic and social benefits of domestic gas-fired power generation and industry.”
The MENA’s natural gas consumption is projected to more than double by 2028, according to a new survey from UK-based Nexant Energy Consultancy. It claims the region in volume terms would boast the third highest average annual demand growth rate after China and India over the next 20 years. Endowed with prodigious hydrocarbons resources, the region will remain at the forefront of the energy industry for the foreseeable future.
Copyright International Communications Jun 2008
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