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Middle East 'must satisfy its own gas demand first'

DUBAI: Flush with cash from record oil revenues, Middle East crude producers have spent billions on economic development and now find themselves short of another energy source needed for growth - gas, say industry experts.

The Middle East holds around 40 per cent of the world's gas reserves, but produces only around 10pc of global supply.

The gap points to the potential for a jump in future production that the United States and consuming countries in Asia and Europe hope would mean higher exports.

But regional demand growth of up to 10pc per year is eating into export potential. Widening supply deficits are forcing governments to emphasise meeting domestic needs.

"Demand growth in the region for natural gas is unprecedented anywhere else in the world," said Rajnish Goswami, gas and power consultant for Wood Mackenzie.

"Governments are quite rightly prioritising the domestic sector before anything else." Qatar and ExxonMobil cited rising costs when they dropped plans for a multi-billion dollar gas-to-liquids export plant in February. But Qatar also had an eye on its burgeoning power needs.

"We need the gas," Qatar's Energy Minister Abdulla Al Attiyah has said. "The country is one big workshop. We cannot just export gas when we need it ourselves. We have to give domestic supply priority." Qatar expects domestic gas demand to nearly triple in 2010 to 4.7bn cubic feet, from around 1.6bn cubic feet in 2006.

Qatar's liquefied natural gas export plans are not under threat. The country is the world's largest LNG exporter and has projects under way to boost shipments to 77 million tonnes a year in 2010 from 31m tonnes this year.

But domestic and regional demand will likely be the focus of any later Qatari output increase, experts say.

"There will still be export projects," said Giacomo Luciani, senior consultant at the Gulf Research Centre. "But the regional gas market makes much more sense than say exporting LNG to the United States." Egypt, the world's eighth largest gas exporter, is also experiencing such rapid gas demand growth that it may have to slow down plans to boost exports, analysts said.

The UAE and Kuwait are two of the states in the Gulf Arab region struggling with the largest gas deficits.

The UAE's gas demand is growing at around 10pc per year. It will begin importing supplies from Qatar through the Dolphin pipeline this summer, and is also hoping for supplies from Iran's offshore Salman gas field this year.

Even with these import projects and plans to boost domestic supply, the UAE will still be short.

"In ten years' time you could easily be looking at a deficit of a 1.5bn cubic feet per day in the UAE," said one executive from an international oil and gas company.

"Getting incremental gas supplies from Iran and Qatar will be very challenging for different reasons," Goswami said.

Measuring the gas supply deficit for the Arab Gulf region is difficult as countries without enough gas are using alternatives. In Kuwait and Saudi Arabia, for instance, much more expensive crude and fuel oil are burnt at power plants.

"The problem is there is a lot of repressed demand," said Luciani. "It is absurd to burn crude or fuel oil in domestic power plants." BP estimates the supply deficit to Gulf Arab countries could reach 7 billion cubic feet per day by 2015.



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