Supply and demand issues and gas pricing topped the agenda at the sixth annual meeting of Gas Summit Arabia in Abu Dhabi.
The Middle East gas industry is waking up to the reality that it increasingly has to explore for gas in hard-to-reach deposits and formations amid rising demands from domestic power, water and petrochemicals sectors.
In addition to this the rise of unconventional gas development from shale in the United States and increasingly Europe is proving to be a potential game changer in shifting the balance of gas production in the world.
These were some of the findings at the sixth Gas Summit Arabia held in early February in Abu Dhabi. Discussions also lent themselves to the fact that in a very short period of time, these unconventional sources of gas would begin to influence global energy dynamics, supply and demand and geopolitics.
The event, organised by The Energy Exchange and the World Refining Association, also discussed the sour gas situation in the region, with a case study by Mohammad Ahmad Husain, deputy chairman and deputy managing director planning and gas of Kuwait Oil Company (KOC), on the North Kuwait Jurassic Project. He highlighted the main challenges facing KOC in developing this gas field.
“The project is of critical strategic importance for the State of Kuwait for power generation and to reduce reliance on imports,” said Husain. “To achieve this, an aggressive programme is underway to achieve the production of 1 billion cubic feet by 2015 and 2016,” he added.
Husain said that the Jurassic development is very challenging and hard to handle. “Difficult reservoirs, deep wells and the high content of H2S along with tough operations are the main challenges we face with the development of project,” he said. “We have a limited experience and resources in this area.”
To develop this project, Husain said that finding a foreign partner will help KOC achieve its target. “The partner should have expertise of similar Jurassic type projects,” he said.
“We also expect the partner to transfer technology and to train KOC staff,” he added stressing on the importance of knowledge transfer in this up and coming sector of the industry.
Mehdi Chennofi, general manager at Shell, Atlantic basin and greater Middle East, highlighted the challenges and opportunities of LNG supply and demand in the Middle East, North Africa and South Asia regions.
“The rise of demand in these regions is driven by population growth and economic development,” he observed. “In other regions of the world, there is a wide range of uncertainty about demand due to the energy policies applied (mainly the green agenda) and GDP,” he added.
Speaking on meeting such demands, Chennofi referred to the typical time frame required to develop an LNG project saying that it could take approximately “five to 20 months to tender for LNG terminals depending on process selection. Another 16 months for the front end engineering and design tendering and permitting.”
“For a conventional land based terminal, it is very dependent on location,” he revealed indicating construction times of between 33 to 39 months. “For a floating storage and regasification unit, our experience in Dubai has shown this can significantly reduce construction time for regas to 18 – 24 months,” he said.
Increasing imports
The Middle East gas market is set to be defined increasingly by the haves and the have-nots in the future as some of the region’s countries that are normally associated with hydrocarbon abundance are seeking to satiate domestic demand for gas by increasing their imports.
Brian Buckley, CEO of Oman LNG, explored in his presentation, discussed the topic of increasing gas imports to the region. “The Middle East is increasing its LNG exports by some 58 bcm (billion cubic metres) in the medium term,” said Buckley. “In the last two years, Kuwait and the UAE became importers,” he added.
While Kuwait, the UAE and Bahrain are facing a shortage, Qatar, Iran and Iraq are enjoying an abundance of gas, noted Buckley. In Oman, the total gas supply and consumption is balanced out due to the significant demand in the domestic power sector being offset by efforts in enhanced oil recovery (EOR) and industrial expansion, according to him.
Iraq’s gas abundance
The Gas situation in Iraq was addressed by Luay Al Khatteb, executive director of Iraq Energy Institute who also spoke at the summit. “Iraq’s gas demand is at 10% growth per annum, while Iran is at 9%,” he said. Currently, the Iraqi consumption is at about 100 bcm per year.
He also drew a scenario on gas production in his country along with demand expectation by 2020. “Based on production of 7 million barrels [per day], we expect a production of 6 billion cubic feet per day,” said Al Khatteb.
“We expect domestic demand to reach 5.5 bcf (billion cubic feet) per day by 2020, the power generation sector will require 4 bcf per day, while downstream will require 0.8 bcf per day.”
With this expected gas abundance by 2020, Al Khatteb raised the idea of establishing a company like SABIC, to monetise the gas, rather than export it, and drew lessons from Saudi Arabia which focused on full utilisation rather than depending on exports.
“I think it would be a good idea for Iraq to establish a company like SABIC in Saudi Arabia as [it would be an] economic multiplier,” said Al Khatteb.
Oil rich, gas poor
Khaled Al Awadi, gas operation manager of UAE-wide oil products distributor Emarat, in his presentation at the event entitled “UAE energy gas demand, supply and solution”, described how even the hydrocarbon-rich UAE with its 200 tcf (trillion cubic feet) of gas reserves – mainly located in Abu Dhabi – is having to turn to importing gas.
“Even with this gas reserve, the UAE is importing 2-2.3 bcfd (billion cubic feet per day) from Qatar, with projection to reach 3.2 bcfd along from others to reach 5 bcfd by 2015,” said Al Awadi.
To meet the increasing demand, the UAE is taking steps to increase gas supplies. “ADNOC is increasing its investments with international oil companies to explore and develop the gas reserves,” said Al Awadi. He added that Dolphin Energy and Sharjah Petroleum would also supply to the UAE’s hungry gas market.
While Sharjah Petroleum may contribute 2% of supply, imports from Iran through the Crescent Petroleum-owned natural gas pipeline would supply 3% of the total demand by 2025, which is set to reach 227,149 mmscfd. “Dubai will add 5% of the total supply,” Al Awadi noted.
However, with any given scenario of gas supply, the UAE will still face shortages. “It should also work on securing alternative fuels and efficiency values,” explained Al Awadi.
“Nuclear for peaceful power generation is one solution that the UAE should invest in, along with solar supply,” Al Awadi said.
Another alternative, said Al Awadi, is the utilisation of coal instead of gas. “In North Emirates, some cement companies have already started using coal instead of gas, where more than 100 mmscfd (million standard cubic feet per day) gas fired kilns were converted. Coal is easy to store handle and transport,” he explained.
Gas pricing and subsidies were also discussed at the Abu Dhabi event, some delegates called for gas prices to be linked to oil. “I think it’s better to link gas to oil via a simple equation, where gas price is equal to oil price divided by 10, rather than using complicated formulas which include Japan’s LNG prices,” said Al Awadi.
Subsidies
Gas price subsidies have been a bone of contention for observers. The issue of gas price subsidies was the topic covered by John Roberts, energy security specialist at Platts. He said that the US led sanctions on Iran led the Islamic Republic to slash subsidies.
“Iranians pay only 29% of the actual cost of the gas, as the government pays almost $66.4 billion [per year] as subsidy,” said Roberts. “They used to get the gas almost for free. But with the new measures the Iranian government is taking, it could save up to US$65 billion by 2015, as it is stopping the subsidy policy,” explained Roberts.
Roberts said that there is an international trend to stop gas subsidies. “China had subsidised gas prices in 2008 by almost $7 billion out of $35 billion of energy product’s subsidies,” revealed Roberts. “But in 2009, as the government slashed subsidies, this declined to $0.5 billion only,” he said. “Selling gas without any subsidies would reduce domestic consumption,” he concluded.
