x Abu Dhabi, UAEFriday 28 July 2017

Gulf region likely to import more gas or lift prices as demand rises

The Gulf region is likely to import more gas or raise prices amid rising demand, which is forecast to equal that of north-west Europe by 2030, according to energy consultancy Wood Mackenzie.

The Arabian Gulf region is likely to import more gas or raise prices to enable it to produce enough to meet rising demand, which is forecast to equal that of north-west Europe by 2030, according to the energy consultancy Wood Mackenzie.

Total Gulf demand for gas, excluding export demand, is around 18 billion cubic feet a day (cfd) and could rise to just below 30 billion cfd by 2030, said Gavin Law, the head of gas and power consulting at Wood Mackenzie.

“By 2030 you could see a situation where per capita demand is considerably larger than in north-west Europe,” said Mr Law this week.

Gas demand in the UAE and the wider Gulf region is rising because of cheap prices and increased power consumption, particularly in the hot summer months.

Apart for Qatar, all other Gulf states will need to tap unconventional reserves to meet this demand, which is more expensive and more difficult to produce.

Around 77 per cent of the Gulf’s 1,100 trillion cubic feet of gas reserves is non-associated gas (raw natural gas that does not contain any hydrocarbon liquids), and nearly 90 per cent of that is in Qatar, according to Wood Mackenzie.

About 18 per cent is associated gas (raw natural gas that comes from crude oil wells), which cannot be pumped at will because it is linked to oil production.

As Organisation of Petroleum Exporting Countries (Opec) members, Saudi Arabia, the UAE, Kuwait and Qatar are bound by oil output quotas set by the oil group, which could limit the amount of associated gas that can be produced.

Future gas production in Qatar, the world’s biggest exporter of liquefied natural gas (LNG), is also bound by a self-imposed moratorium at its North Field, the country’s biggest.

The remaining 5 per cent of gas reserves is sour gas that has a high percentage of hydrogen sulphide, is expensive and hard to produce.

“You might have to raise gas prices to see that [expensive gas] developed or you look at alternative solutions to import more gas into the region,” said Stewart Williams, a principal analyst of Middle East upstream research at Wood Mackenzie.

Gas sales in the UAE this year are about 5.2 billion cfd, of which 57 per cent are domestic sales and LNG exports, 37 per cent are Dolphin imports and 6 per cent are LNG imports, according to Wood Mackenzie estimates.

Abu Dhabi National Oil Company (Adnoc) is working hard to increase the gas supply in the emirate, with demand expected to rise 15 per cent a year.

Used as feedstock in all of the emirate’s power plants, gas is also used for re-injection into oilfields to maintain wellhead pressure, and in petrochemical production.

Adnoc expects to start production at the Bab sour gasfield in 2020. The project will add more than 500 million standard cubic feet (scuf) of gas to Abu Dhabi’s strained supplies.

Earlier this year, Shell clinched a US$10 billion deal to develop Bab, which will add 520 million scuf of usable gas to the emirate’s supply. The 1 billion scuf that will flow from the wells is greatly reduced once it has been stripped of the sulphur that sours the gas.

The project is part of a five-year investment cycle in Abu Dhabi’s oil-and-gas sector worth $40bn; about $25bn of which will be invested into developing gas resources.

Shah Gas Development, which is developed by Adnoc and the US oil major Occidental, will produce the same amount of gas as Bab. It is set to turn operational next year.

The alternative for countries has been to import natural gas and LNG.

The UAE and Oman import Qatari gas through the Dolphin project pipeline, while Dubai buys LNG.

Abu Dhabi is setting up an LNG import terminal in Fujairah that will have an annual import capacity of 9 million tonnes. Adnoc this year completed an $11bn integrated gas development, a set of facilities and infrastructure that collects and processes associated gas from offshore oil production that supplies 800 million scuf of gas.

The gas constraint is further exacerbated by the low level of gas exploration in the region, according to Mr Law.

“In the last five years, you look at what’s happened in terms of gas reserves discovered. Even the number of exploration wells being drilled is pretty lacklustre,” said Mr Law.

Mr Williams said there would be a drop in the number of licence awards for oil and gas exploration in the Middle East, with the current number of relinquished licences outstripping new ones.

“We are going through the cycle again, we are on our way down again, we are plummeting,” said Mr Williams. “Last year and this year we are seeing more relinquishments [of licences] than awards.”

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