Emerging Markets in the Middle East for New and Existing Liquefied Natural Gas Projects Figure 1: East of Suez Liquefied Natural Gas Imports (2010)
Selling gas at very low and subsidised prices for domestic consumers (especially the petrochemical and industrial sectors) has resulted in rocketing demand. Prices have been a contributing factor to the development of large-scale gas-intensive infrastructure and industrial investments such as desalination, petrochemical, steel and aluminium plants, to name a few. Regulated gas prices (in most of the region, prices are under US$1/MMBtu) have already made gas supply a crisis in some Middle East countries such as Iran, the United Arab Emirates (UAE) and Saudi Arabia.
2% 98% Existing markets in Asia (JKTIC)
Total: 134mmtpa. * Kuwait, Dubai.
JKTIC = Japan, Korea, Taiwan, India and China. Figure 2: East of Suez Liquefied Natural Gas Imports (2020) New markets in Middle East and Asia*
Though other countries in the region are net gas exporters, such as Qatar, Oman, the emirate of Abu Dhabi in the UAE and Yemen, little LNG trade or gas infrastructure such as pipelines have materialised in the region. Other countries with large gas reserves have been unable to export gas for political or security reasons, including the likes of Iran and Iraq. Several intra-regional pipeline projects have been under discussion but they are not expected to be realised any time soon. Talks on these cross-border pipelines have been stalled by disagreement on gas price or border disputes. Qatar is virtually the only country that is not facing domestic gas shortages of its own but has maintained a moratorium on new gas developments (such as expansion of the Dolphin pipeline), mainly in order to protect its reserves for future generations.
19% 81% Existing markets in Asia (JKTIC) Total: 223mmtpa.
* Kuwait, United Arab Emirates, Bahrain, Saudi Arabia, Pakistan, Singapore, Thailand, Vietnam, Philippines and Bangladesh.
JKTIC = Japan, Korea, Taiwan, India and China. Kuwait
accelerated without decreasing the long-term availability of the relatively more valuable crude. In some countries, gas is very sour and requires considerable processing and expense before becoming a saleable product.
Despite the region’s massive petroleum reserves, gas production in almost all Middle East countries is struggling to keep abreast with demand, especially by the industrial and power sectors. Gas has become the favoured feedstock for power generation. Where fuel oil is an option based on available resources, gas has been preferred for its cleaner burning properties, plus the use of fuel oil domestically removes the opportunity of high-value revenue from its export. It is more difficult to transport and therefore monetise, natural gas.
Middle Eastern energy market dynamics shifted dramatically in 2009 as a result of the commencement of the region’s first LNG imports into Kuwait. Now Kuwait and Dubai’s status as LNG importers illustrates the Middle East’s strong dependence on natural gas and the rapidly increasing gap between supply and demand.
Combined with booming population growth, there are a number of fundamental reasons for this severe shift – declining indigenous reserves, inability to obtain international pipeline supplies and very low gas prices.
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Kuwait became the region’s first importer in 2009, through its floating regasification facility with up to 3.8mmtpa capacity. Kuwait’s LNG imports are highly dependent on three elements, including associated gas production, Jurassic gas development and the completion of the Ras Al-Zour refinery. Each element is needed to fulfill fuel requirements for the Kuwaiti power sector. If one fails, there is need for more LNG.
Natural gas represents just under a third of the fuel mix in Kuwait’s power generation and industry accounts for another quarter. The share of natural gas in power generation is expected to increase through 2020 as a result of more gas supply from non-associated gas reserves and LNG imports. Kuwait is not expected to develop its non-associated gas reserves quickly due to technical challenges in gas production from tight and complex reserves.
Kuwait imported LNG from August to October in 2009, expanding its import period to March through October and more than doubling its import volume in 2010, to reach roughly 2.1mmt of LNG.
In January 2011, the Kuwaitis announced plans to import LNG from mid-March to mid-November. This decision may result in the need to purchase two to three times as many LNG cargoes for power generation as they already receive through a four-year agreement with Shell and Vitol to import LNG for six months of the year, which started in 2010.
HYDROCARBON WORLD – VOLUME 6 ISSUE 1 New markets in Middle East and Asia*
There are four key emerging importers in the Middle East region: existing importers Kuwait and Dubai, plus planned importer Bahrain and potential importer Saudi Arabia. Two of these countries, Kuwait and Dubai, currently account for around 2.2mmt of total LNG demand and by 2020, all four could account for almost 14.8mmt of LNG imports. That is 35% of the forecast demand by all new markets in the East of Suez in 2020. Below we outline some of the key supply and demand factors, as well as import plans, for the following countries.
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