18-04-07

Flush with cash from record oil revenues, Middle East crude producers have spent billions on economic development and now find themselves short of another energy source needed for growth -- gas.
The Middle East holds around 40 % of the world's gas reserves, but produces only around 10 % of global supply.

The gap points to the potential for a jump in future production that the US and consuming countries in Asia and Europe hope would mean higher exports. But regional demand growth of up to 10 % per year is eating into export potential. Widening supply deficits are forcing governments to emphasise meeting domestic needs.
"Demand growth in the region for natural gas is unprecedented anywhere else in the world," said Rajnish Goswami, gas and power consultant for Wood Mackenzie. "Governments are quite rightly prioritising the domestic sector before anything else."

Qatar and ExxonMobil cited rising costs when they dropped plans for a multi-bn dollar gas-to-liquids export plant in February. But Qatar also had an eye on its burgeoning power needs.
"We need the gas," Qatar's Energy Minister Abdullah Al Attiyah has said. "The country is one big workshop. We cannot just export gas when we need it ourselves. We have to give domestic supply priority."

Qatar expects domestic gas demand to nearly triple in 2010 to 4.7 bn cf, from around 1.6 bn cf in 2006. Qatar's liquefied natural gas (LNG) export plans are not under threat. The tiny country is the world's largest LNG exporter and has projects under way to boost shipments to 77 mm tpy in 2010 from 31 mm tons this year. But domestic and regional demand will likely be the focus of any later Qatari output increase, experts say.
"There will still be export projects," said Giacomo Luciani, senior consultant at the Gulf Research Centre. "But the regional gas market makes much more sense than say exporting LNG to the US."

Deficit
The UAE and Kuwait are two of the states in the Gulf Arab region struggling with the largest gas deficits. The UAE's gas demand is growing at around 10 % per year. It will begin importing supplies from Qatar through the Dolphin pipeline this summer, and is also hoping for supplies from Iran's offshore Salman gas field this year. Even with these import projects and plans to boost domestic supply, the UAE will still be short.
"In ten years' time, you could easily be looking at a deficit of 1.5 bn cfpd in the UAE," said an oil and gas executive.

Politics, sanctions and construction delays have slowed Iran's gas development.
"Getting incremental gas supplies from Iran and Qatar will be very challenging," Goswami said.
BP estimates the gas supply deficit to Gulf countries could reach 7 bn cfpd by 2015.

Subsidised domestic prices and a focus on oil mean the region has not developed its gas resources quickly enough to keep up with demand. Those subsidies and low domestic gas prices will have to be removed if the region is to slow demand and encourage development of its gas resources.
"There is a problem here, and the next five years will be difficult," the oil executive said. "But there is also a solution. Higher prices and more gas development."