Gas shortages in the Gulf

Wednesday June 18

Gas demand in the Gulf Cooperation Council (GCC) is outstripping supply, and threatens to put a brake on industrial development.  With regional disputes hampering the construction of pipelines some GCC states are turning to liquefied natural gas (LNG) imports as an alternative.

The GCC states have significant reserves of natural gas, accounting for 23.6% of the world's total proven reserves. Yet, with the exception of Qatar, where natural gas development has raced ahead as an export industry, the other GCC countries have largely prioritised oil development over gas.

This is now changing, owing to growing domestic demand for gas as feedstock, driven by investment in the refining, petrochemical, fertiliser, metals and other industry sectors, underpinned by oil revenues.  Industrial investments and broader economic growth have also increased power demand, as has the need for new desalination plants to increase potable water supply.

Unless import facilities are developed, domestic industrial expansion remains dependent on the ability to expand domestic gas and power supply. Yet despite the abundance of natural gas in the region, this is not proving easy, as disputes over borders and pricing have frustrated cooperation.

• The shortage of gas in the UAE is most acute in Dubai and Abu Dhabi, where fast economic growth has seen power demand accelerate. Both cities have attempted to import gas from Iran, but territorial disputes have blocked progress.

• Oman has a large surplus of produced gas, but owing to its export commitments, it requires additional gas to sustain its industrial development.

• Despite its substantial gas reserves, Kuwait expects to become a net importer soon. Having long neglected gas in favour of oil, the country has developed its first gas from non-associated gas fields in the north of the country.

In the long term, Qatar's role as a regional gas supplier is set to increase.  However, the inability to conclude and implement regional pipeline agreements is likely to limit gas as a feedstock and source of power for local industrial development, necessitating further LNG imports as a stopgap and potentially increasing interest in nuclear energy.