Coming & going: Part One

It is well known that the Middle East is the most prolific oil-exporting region in the world. In 2013, the region accounted for nearly 35% of the world’s oil exports, and it will remain a key supplier of oil to global markets for many years to come. The Middle East is also a prolific holder of natural gas reserves – with over 40% of proved global reserves – yet Qatar is the region’s only major exporter of natural gas, a role it assumed only within the last decade.

There are several reasons for this. The first is that gas reserves in the Middle East are heavily concentrated in few countries, with Qatar and Iran alone accounting for around 72% of the region’s reserves. According to the BP Statistical Review of World Energy 2014, Qatar holds 872 trillion ft³ in proved reserves of natural gas, while Iran holds 1195 trillion ft³.¹ Qatar, with its population of around 2 million, is the largest LNG exporter in the world today, exporting approximately 106 billion m³ of LNG in 2013 (~33% of global LNG exports and 79% of Middle East LNG exports). Iran, however, with its much larger population of 75 million, produces gas mainly to serve its domestic market. It has no LNG capacity and exports only modest volumes to regional neighbours via pipeline. Iran’s inability to access technology and equipment for developing an LNG export sector due to Western sanctions has also curtailed its gas exporting ambitions.

Another reason is high domestic gas consumption in the Middle East, which accounts for a higher share of domestic production than oil. Apart from Iran, other major natural gas reserve holders in the Middle East, such as Saudi Arabia and the United Arab Emirates (UAE), use gas to supply their domestic market to meet rapidly growing electricity needs for residential and industrial use. In the case of Saudi Arabia, gas is being increasingly used in the power sector to reduce the amount of valuable crude oil (in terms of lost export dollars) that is used to generate electricity. Saudi Arabia, the world’s largest exporter of oil, is not an exporter of gas. Several Middle East states have developed a gas-hungry petrochemical sector too, which also boosts natural gas requirements. In addition, domestic natural gas prices are heavily subsidised, which only encourages higher rates of consumption.

Finally, associated gas from some of the oil fields of the Gulf states and Iran is often used for re-injection to boost crude oil production, and is therefore not captured and used for domestic or export markets. And in the case of Iraq, gas has simply been flared at the well head and therefore not put to good use, despite the country’s enormous potential as a gas supplier. Iraq holds 126.7 trillion ft³ in reserves of gas, but its actual gas production is minimal (although a gas capture programme did begin last year).

Therefore, rapid economic growth and subsidised prices, coupled with attempts at industrialisation and increased use of gas for power generation, have all led to fast demand growth for natural gas in the Middle East, limiting the region’s gas export potential as a whole. Over the last decade alone, the Middle East’s gas demand grew from 231.1 billion m³ in 2003 to 428.3 billion m³ in 2013, representing a compound annual average growth rate of 6.4% according to Economist Intelligence Unit estimates. Production has also grown rapidly, from 264.1 billion m³ to 568.2 billion m³ over the same period, but with the exception of Qatar the bulk of this increase has been absorbed by domestic demand.

As a result, the Middle East LNG story is somewhat different to that of oil, in that it is emerging as both an LNG exporting, as well as an LNG importing, region. The Middle East already has the world’s largest LNG exporter in Qatar, with some modest contributions to LNG exports also made by Yemen, Oman, and the UAE (Abu Dhabi’s Das Island). However, it is also emerging as a major LNG-importing region, with states such as Kuwait and the UAE looking to boost existing regasification capacity, and with some other potential markets (Egypt, Jordan, Lebanon and Bahrain) expected to join the ranks of LNG importers by the end of this decade. Meanwhile, Iran remains a sleeping giant of the natural gas world: it could become a gas exporter should comprehensive Western sanctions be lifted and its domestic production increase rapidly. Israel, on the other hand, is primed to become a regional gas exporter, although this is more likely to be in the form of pipeline gas rather than LNG.

Reference:

1. BP Statistical Review of World Energy, 2014.

Written by Peter Kiernan, The Economist Intelligence Unit. Edited by Ted Monroe

Parts Two and Three of this article will provide a summary of the current state of play of LNG in the Middle East, looking at both existing and potential LNG exporters and importers.

Read the article online at: https://www.lngindustry.com/special-reports/16102014/peter-kiernan-explains-why-lng-imports-and-exports-are-shaping-the-middle-east-lng-landscape/