Gulf Gas consumers must pay more

31 October 2008
Fast-rising domestic consumption and poor economic incentives for exploration mean supply is increasingly falling short of demand.

For a region with so much gas, the Middle East is having enormous problems in getting enough of it out of the ground.

The Gulf boasts four of the world’s five largest gas reserves, but only Qatar has significant gas export capacity. In the rest of the GCC, fast-rising domestic consumption and poor economic incentives for exploration mean that supply is increasingly falling short of demand.

In Iran, international isolation, bureaucracy and other domestic political pressures have had the same result, and it will be some years before Iraq can consider exporting gas.

Even Qatar has its limits, given its moratorium on the development of the giant North field.

Consumers might be better off looking at North Africa, although there are limitations here too. Algeria’s planned pipeline and liquefied natural gas (LNG) capacity increases are running behind schedule. Egypt’s plans to boost its gas export earnings have been slowed by high domestic demand, and Libya’s gas industry is still in its infancy.

But there is cause for hope. The planned expansion of Algeria’s LNG capacity is set to make it the second-largest LNG exporter in the world by 2012, and two new pipelines to Europe will consolidate its position.

Significant gas discoveries in Egypt in the past year, and the government’s willingness to pay more to international energy firms for that gas, may also help Cairo move ahead with plans to increase its LNG capacity.

In Libya, Italy’s Eni and the UK/Dutch Shell Group are both working on increasing gas export capacity, and the UK’s BP hopes that its offshore exploration programme may eventually justify a new LNG terminal.

In the end, however, the region needs to adjust the prices charged to consumers if it wants to make it attractive for firms to explore for gas and then sell it.

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