March 30 2017

Regional Gas Industry Issues

and Opportunities

The Future of Gas in the Middle East

Anne-Sophie Corbeau

Research Fellow II, KAPSARC

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Middle East – An addiction to natural gas

The region holds the largest share of proven gas reserves in the world

─ 43 percent of the world’s reserves (80 tcm)

─ But mostly concentrated in Iran (34 tcm) and Qatar (24.5 tcm)

This is the only region where gas represents more than half of primary

energy demand

─ And 62 percent of power generation

Natural gas demand has been growing fast (+300 bcm over 15 years)

─ Largely driven by 1) power demand growth and 2) industry (petchem)

─ Supported by low gas prices

─ Iran and Saudi Arabia represent 60 percent of additional volumes

But so have exports (+100 bcm for LNG and +10 bcm for pipeline)

Production failed to fully meet these needs

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Intraregional pipeline trade is limited (mostly from Qatar)

Countries have increasingly had to turn to more expensive LNG imports

Two-thirds of the Middle Eastern countries are/were importing

Source: KAPSARC.

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Jordan, Kuwait and the UAE contributed to around 4 mtpa of additional demand in 2016

First LNG terminals were FSRUs, but countries are now turning to onshore LNG

terminals

LNG imports are likely to continue in the longer term

Middle East helped absorb new LNG supplies in 2016

Source: Shell.

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LNG demand is particularly high during summer due to air conditioning,

but some winter demand is appearing too

This requires flexibility in the contractual arrangements and/or spot

supplies

Middle East LNG demand remains very seasonal

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The region’s wholesale gas prices are relatively low

Source: IGU, wholesale gas price survey.

LNG importer

Potential LNG

importer

Range of Asian spot

LNG imports (2016)

Wholesale gas prices (2015)

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But they are increasing

Country Before After

Bahrain Industry: $2.25/MMBtu $2.50/MMBtu (+$0.25 every April 1

until 2021)

Oman Industrials: $2/MMBtu $3/MMBtu

Power: $1.50/MMBtu $3/MMBtu

Saudi Arabia $0.75/MMBtu $1.25/MMBtu

Abu Dhabi Increases reported in January 2017

Source: IGU, KAPSARC

This is not a specificity of the Middle East: gas prices have also been

increasing in many developing markets featuring low gas prices

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Saudi Arabia – Energy Price Reform

Source: Vision 2030

Price increases 2016 vs. 2015

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Is there a golden age for Middle East gas?

0

100

200

300

400

500

600

700

800

bcm

Demand Production

Gas production and consumption

• Energy efficiency• Strong renewable growth • Nuclear• Effect of price increases• Loss of competitiveness of industries• Production constraints• High LNG prices

• Replacing oil in power• Effect of price increases on gas

production• Import infrastructure + low

international gas prices

Demand drivers

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NDCs and natural gas

Saudi Arabia Encourage investments on exploring and producing

natural gas to significantly increase its contribution to

the national energy mix

Oman

UAE

Qatar

Target of increasing clean energy contribution to the

total energy mix from 0.2% in 2014, to 24% by 2021

Shift 25% of government vehicle fleets to CNG

Gas is a clean energy

Reduction in gas flaring

Increase in the share of renewables

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The pace of future gas demand growth will be impacted by many

variables

─ The impact of COP21 (renewables, energy efficiency, nuclear)

─ Replacing oil in the power sector/industry

─ Transformation plans of the region’s economies

Current LNG producers may stop exporting in the future – except for

Qatar

─ The role of the Middle East as an LNG exporter is bound to decrease

─ But its LNG imports will increase

Increasing gas prices

─ Governments navigate on a tight rope between incentivizing their own

production/allowing for imports and keeping energy-intensive industries

competitive

Conclusions

Anne-Sophie Corbeau

E: Anne-Sophie.Corbeau@kapsarc.org

T: +966 11 290 3036

www.kapsarc.org

Thank you for your attention