A sign placed by locals next to the entrance of a gas refinery in Dubai reads: “Welcome to the land of Blue gold”. Dubai, one of the seven emirates of the United Arab Emirates, is one of the countries of the resource-rich Arabian Gulf Peninsula, estimated to contain with 23% of the world’s gas reserves, and many observers would therefore imagine that it would have an adequate supply of the fuel to meet their needs. However, an increasing gas shortage in the region amid a significant supply overhang in the rest of the world is resulting in Gulf Cooperation Council (GCC) countries finding themselves in uncharted territory, an almost contradictory position of having to import gas, when they have exported gas for decades.
In 2009, GCC countries (Bahrain, Oman, Kuwait, Qatar, Saudi Arabia and the UAE) began to become importers. Kuwait received its first shipment of LNG from Russia in August 2009, with the emirate of Dubai expected to follow in 2010 and other countries not far behind. For these nations, this reversal of a decades-old status quo is likely to mean greater integration with global gas markets, accompanied by changes in their relationships with companies in other regions. For the rest of the world, this could mean a significant shift in the way gas flows around the globe.
Recent regional energy reports claim that the GCC gas shortage will become more pronounced through at least 2015, as demand stays strong and supplies fail to keep pace. A number of factors are whetting the GCC’s appetite for gas. Its economic boom has caused increases in power consumption, and gas fuels 57% of the region’s power supply. It is also used in the ageing oilfields, as a crucial ingredient in oil recovery. Additionally, regional governments hope to diversify their economies by bolstering the steel, aluminium and petrochemicals industries – all of which require gas. Finally, countries need to make gas available for their long-term export commitments to Asia and Europe. All of these developments are occurring just as GCC countries struggle to maintain previous levels of gas production because of exploration and production challenges. But while the GCC is likely to face continued shortages in the coming years, it need not be left high and dry. The region’s increasing demand is occurring in tandem with a significant oversupply in the rest of the world.
The global economic recession has taken a toll on energy-intensive sectors such as the automotive, chemicals and steel industries, reducing demand for gas. The UAE and Oman, which have long-term export commitments with Japan and South Korea, could take this opportunity to renegotiate these contracts, freeing gas for their domestic use and providing relief to the Asian economies that now have less need for it. A further factor is that more gas is coming from unconventional resources in North America, which has seen a sudden boom in gas production from tight gas, coal-bed methane and, in particular, shale gas. Production from these unconventional sources is expected to grow by about 8% a year to 2015. This new supply would not only mean greater self-sufficiency for North America; the region could potentially become an exporter over the long term, with the GCC as a possible market. Finally, new LNG projects in Russia, Yemen and Qatar came on stream in 2009 and this year, significantly increasing global gas supply. With more capacity slated to become available, global gas markets are likely to realise up to a 15% surplus until at least 2015 and perhaps beyond. The need for gas in the GCC will stop this surplus from flooding global markets as demand in other countries gradually recovers from the economic downturn.
Likely outcomes to the problem are lengthy but over the long term, GCC countries can address the supply–demand imbalance by raising local gas prices gradually, improving energy efficiency through new regulation, increasing penetration of alternative power sources in the energy mix, investing in alternative methods for enhanced oil recovery, and providing incentives for international oil companies (IOCs) to participate in the upstream gas sector. Such an approach would require national oil companies (NOCs), utilities, and regulators in the region to work together to develop a GCC-wide approach and even consider a regional gas grid.
The GCC, which holds almost one-fourth of the world’s gas reserves, faces a gas shortage that likely will persist for years. The problem is real and likely will worsen, as demand in the GCC for gas continues as regional economies diversify and grow in sectors reliant on gas. However, there is opportunity to face the challenge both in the short and long term. For GCC nations there is a silver lining to the global economic slowdown: reduced demand for gas on a worldwide basis. Reduced demand coupled with growth from unconventional sources in North America, and a large increase in the number of LNG projects have resulted in a significant global surplus of gas. That supply overhang provides the GCC with a prized short-term opportunity to ease what has become a major energy issue: a shortage of gas. Through analysis, planning, and implementation, GCC countries and energy producers can take measured steps to ensure that they are able to keep the lights on in the most economically viable way for decades to come.
