Emerging Markets in the Middle East for New and Existing Liquefied Natural Gas Projects
a report by Fereidun Fesharaki,1 Alexis Aik2 and Noelle Leonard3
1. Chairman, FACTS Global Energy Group of Companies; 2. Deputy Managing Director, Singapore; Head of Global Gas, FACTS Global Energy; 3. Consultant, FACTS Global Energy
Global liquefied natudireral gas (LNG) commercial trends have changed dramatically during the past decade. Before 2000, markets East and West of Suez were almost entirely supplied by intra‐regional LNG. However, today’s trade patterns have evolved substantially as it is increasingly common for sellers and buyers to engage in cross‐basin transactions, making the business truly ‘global’. Increased appetite for LNG over this past decade in both the Asia Pacific and Atlantic Basin markets, combined with the start-up of unprecedented quantities of liquefaction capacity, helped create an impetus for both intra- and inter-regional short- and medium-term LNG trades. What is truly remarkable about these trade patterns has been noted in the Middle East. The emergence
Fereidun Fesharaki, Chairman, FACTS Global Energy Group of Companies. He has a PhD in Energy Economics and has written dozens of books and many more articles in the field. He was the 1993 President of the International Association for Energy Economics, a key professional organisation representing more than 3,000 energy economists in more than 70 countries. In 1989, he was elected a member of the Council on Foreign Relations in New York. Since 1991, he has been a member of the International Advisory Board of Nippon Oil, Japan’s largest oil company. He is also a member of the Pacific Council on International Policy. In 1995, he was elected Senior Fellow of the US Association of Energy Economics for distinguished services. In 1998, he joined the Board of Directors of the American–Iranian Council. In 2002, he was appointed Senior Associate of the Center for Strategic and International Studies in Washington, DC. In 2008, he was appointed a member of the National Petroleum Council by the US Secretary of Energy and was reappointed in 2010. In 2009, he was appointed a member of Dubai Mercantile Exchange Limited Board of Directors. Prior to founding FACTS Global Energy (FGE), he was with Harvard's Center for Middle Eastern Studies and in the late 1970s, he was the Energy Advisor to the Prime Minister of Iran and a delegate to OPEC’s Ministerial Conferences. He has led energy-related academic research at the East–West Center since 1985.
Alexis Aik, Deputy Managing Director at FGE's Singapore headquarters, heads the gas research and consulting practice. She also serves as the Head of Information & Analysis Group, which comprises oil and gas analysts that serve all offices of the FGE Group. At FGE, her research concentrates on the developments of the natural gas and LNG sector, including demand–supply scenarios and pricing issues. She takes a special interest in Asian gas/LNG market dynamics and LNG contract pricing. Her past experience spans both the natural gas/LNG and downstream oil business, where she analysed the relationships between these two sectors, with a regional focus on South-east and North-east Asia. Previously she also tracked Asia Pacific oil product specifications. In addition to leading studies dealing with LNG procurement and pricing analysis, country specific natural gas and oil markets, Middle East and Caspian Sea oil demand and trade and pricing East of Suez, she has also presented at several oil and gas briefings/conferences in Asia, the Middle East and the USA. Her work has been published in numerous international publications and research journals and has also been filed in US Federal Energy Regulatory Commission proceedings. Alexis holds a Bachelor in Business Management and is formerly a Fellow of the East–West Center Asia-Pacific Leadership Program.
Noelle Leonard, Consultant, FACTS Global Energy, joined FGE in October 2010 as a consultant based in Perth. She earned a Bachelor of Arts in Political Science from the University of Oregon in 1991 and a Bachelor of Economics from the University of Western Australia in 2000. She has previously worked at Perth-based Woodside Petroleum. Her focus there was LNG and pipeline gas business development and strategy. Her work included analysis of market information with regards to LNG and pipeline gas, including modelling of supply and demand. Furthermore, she was responsible for analysis of pricing and contract terms and conditions for LNG and pipeline gas. She has also worked in various economic research and consultancy roles for Curtin University. There, she carried out a comprehensive study of global energy reservation policies.
of new supply capacity in the region, coupled with its strategic location, which allows it to supply both the Atlantic and Asia Pacific Basin markets, creates a physical link between both markets. Despite its pivotal role as LNG exporter, the Middle East region is facing rapid increases in local gas demand that has not been satisfied by available local supply. This article focuses on the potential of the Middle East as a target market for new and existing LNG suppliers.
Potential for Liquefied Natural Gas Demand Growth over the Next Decade
In the long run, FACTS Global Energy (FGE) forecasts global LNG imports to grow at an average annual growth rate of more than 6% to more than 400mmt between 2010 and 2020. Most new LNG demand growth (in absolute terms) from 2010 to 2020 is expected to come from Asia, followed by Europe, the Americas and the Middle East. Asia is expected to account for the lion’s share of global LNG trade at roughly 50% by 2020.
The growth outlook for East of Suez LNG demand from 2010 to 2020 is good. Total demand in this market is forecast to climb from 134mmt in 2010 to more than 223mmt in 2020 (see Figure 1). LNG demand growth will result from regional recovery from the 2008–2009 economic crisis, as well as individual governments’ efforts to boost gas’s role in the primary energy mix. FGE projects that China and India will be the key engines of East of Suez LNG demand growth, increasing at an average annual rate of around 11% during the decade, while established Asian LNG markets (Japan, South Korea and Taiwan) will grow at a comparatively slower pace during the same period. The commencement and/or ramp‐up of LNG imports in countries like Thailand, Singapore, Indonesia, Malaysia, Pakistan, Kuwait, Dubai, Bahrain and possibly Saudi Arabia, will contribute further towards the overall bottom line for East of Suez during the forecast period.
Key Emerging Markets in the Middle East Though the number of countries considering the import of LNG is growing all the time, we highlight here four key emerging markets in the Middle East. In this region, the utilisation of floating storage and regasification units (FSRU) has become a ‘quick fix’ for the Middle East gas market, originally to overcome spikes in seasonal gas demand. But already these countries are moving closer to year-round imports. FSRUs take some 18–24 months to be completed, as compared to 33–39 months for an onshore regasification terminal.
Not all Middle Eastern countries have significant gas reserves and those that do have issues with utilising them for political reasons, lack of appropriate technology or lack of investment in exploration or infrastructure and other country-specific reasons. In many cases, gas production is associated with oil extraction and cannot be
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LNG
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