x Abu Dhabi, UAEMonday 24 July 2017

Gas price cap 'hampers' development

Government price caps on natural gas are holding back the development of shale and other unconventional reserves that could solve the Gulf¿s gas shortage.

Government price caps on natural gas are holding back the development of shale and other unconventional reserves that could solve the Gulf's gas shortage, international oil executives say.

If governments allowed power utilities and industry to pay higher prices, Gulf states could replicate a boom in gas production in North America, led by development of difficult shale gas reservoirs, said Jonathan Evans, the general manager of BP Oman.

Gas prices are fixed in all GCC states at an average one quarter of international market levels.

"There's every reason to suggest such reservoirs exist all over the Middle East," Mr Evans said. "It's all about politics and economics at the end of the day."

The North American boom has relied on costly technology that pumps huge amounts of water underground to shatter rock formations and force gas into wells.

Gulf states for years have pumped gas as a by-product of oil production at extremely low cost. But increased demand for electricity has pushed up demand significantly in the past five years, with all GCC states except Qatar facing a gas shortage.

Gulf governments must be willing to let prices rise to create an economic incentive for their development, said Nathan Meehan, the vice president for reservoir technology at the US oil services company Baker Hughes.

"The main drivers are not necessarily the technology and the gas in place," Mr Meehan said. "The key drivers are going to be all the dollars needed to get it; what kind of prices you're going to be able to get."

In September, Khalid al Falih, the chief executive of Saudi Aramco, said it had identified significant reserves of gas classified as unconventional because it was buried in shale formations, contaminated with high levels of toxic hydrogen sulphide, or was held in unusually tight rock.

And a year ago, Kuwait enlisted Royal Dutch Shell to explore for unconventional deep reserves, and Jordan signed a deal with BP to develop an unconventional gasfield.

 

cstanton@thenational.ae