Special Report: Oil & Gas - Gulf producers tackle gas supply shortages

03 November 2009

Despite being home to some of the largest gas reserves in the world, the Middle East is suffering from shortages because of Opec oil cuts

Iran holds the world’s second-largest proven reserves of gas, after Russia, with 948 trillion cubic feet. Qatar is second in the Middle East’s league of gas-rich states, while Saudi Arabia and the UAE also have significant reserves.

One of the main causes of the shortages is the oil production cuts made by Opec since September last year, in an effort to steady the price of oil, which was in freefall in late 2008 and early 2009. This has not only reduced the flow of oil – by 4.2 million barrels a day – but has also dramatically reduced the amount of associated gas produced from oil fields.

Regional gas producers now find themselves in a difficult situation. While demand for gas is growing, supply is shrinking, but the incentive to invest in greater production of standalone gas fields – rather than gas linked with oil fields – is weak.

Thanks to Middle East government’s long-standing policies of offering subsidised gas to local consumers, international oil companies are often reluctant to spend heavily on finding and developing new gas fields.

Until the issue of government subsidies is resolved, the story of the Middle East’s gas sector will continue to be one of des-cribing its potential, rather than charting its success.

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