Natural gas is combustible colorless and odorless gas. It differs from Liquid Petroleum Gas (LPG) that it has a lower heating value and requires heavy infrastructure investments. Similar to oil, natural gas is described as sweet or sour depending on its hydrogen contents. It is also called wet or dry based on the methane content and described as associated or non-associated depending upon whether or not it is associated with significant oil production. Natural gas can be measured by its volume (cubic feet), or as a source of energy (BTU)
Recently, the prices for construction of LNG plants, receiving terminals and vessels have significantly decreased due to new technological advancement and more investors. The world’s largest LNG exporters are Indonesia and Malaysia, which export to the Asian market. Algeria supplies to Europe and the US, while Qatar exports to Spain and India. Russia and Iran possess the world’s largest proved gas reserves, but do not yet have liquefaction capability
According to BP statistical review and the EIA annual outlook, natural gas contributes to 23.5 % of the total world energy consumption and it is expected to increase to 26.32% in the year 2030. Natural gas uses in the Middle East will more than double between 2003 and 2030. Oil-exporting countries in the region have deliberately sought to expand domestic natural gas use in order to make more oil available for export
According to EIA, the industrial sector consumes 44% of the total consumption of natural gas worldwide and it is estimated to increase by 2.8% annually till the year 2030. While the electric power sector consumes 31% and it is expected to grow by 2.9% each year during the same period. In the industrial sector, the natural gas will overtake oil as a dominant source of fuel in 2030, but in the electric power sector, natural gas remains second to coal
A study done by 10-nation Organization of Arab Petroleum Exporting Countries (OAPEC) shows that the Arab region’s gas demand growth overtakes oil with an annual growth of 4.4% until 2020. This will expand the share of gas in the Arab energy market from 41.5% in 2005 to 46.2% in 2020
Natural gas prices are expected to be strongly influenced by the price of crude oil. In a tight gas market, small changes in supply or demand can translate into large changes in the price of natural gas; therefore, high volatility of prices should be expected. We expect natural gas prices to average between $4.5-5.5 per million British thermal unit (mBtu).
The GCC countries account for almost 25% of world’s natural gas proven reserves. Qatar , Saudi Arabia, UAE and Kuwait are among the top 20 countries in terms of natural gas reserves ranked 3rd, 4th, 5th and 20th respectively. In addition, Saudi Arabia, UAE and Qatar are ranked 10th,11th and 19th in terms of production.
Natural gas which was once ignored has suddenly attracted oil majors that are pouring billions into projects to meet a booming demand for the environmental friendly fuel. Oil will continue to reign supreme because of its dominance in the transport sector, but gas will find a home at power stations, overtaking dirty coal.
Demand for natural gas is increasing. It comes second after coal as the fastest growing primary energy source. The natural gas share of total world energy is expected to be 28% in 2030 from 23.5% in 20005. That is an increase of 4.5% which can be justified by environmental constraints as well as high oil prices which encourages consumers to rely more on natural gas. Also technological developments, especially in the area of transportation can be a main factor in driving the world to demand more natural gas.
Looking forward, natural gas use in the Middle East is expected to more than double between 2003 and 2030, where oil-exporting countries in the region have deliberately sought to expand domestic natural gas use in order to make more oil available for export.
The future of this clean, efficient and environmentally friendly fossil fuel should be much brighter than that of oil. Yet many uncertainties surround future gas demand. Gas being in direct competition with oil, future price trends of the latter will have a bearing on natural gas consumption. Declining oil prices do not favor natural gas, but environmental considerations do, at the expense of oil, while tax policies in consumer countries penalize oil in favor of natural gas.
Unpredictable geopolitical developments in the two natural-gas-producing regions, namely the Middle East and the Former Soviet Union (FSU), could affect long-term investment in pipelines, whereas technological progress, which can reduce the cost of transporting liquefied natural gas, could definitely be a plus in encouraging consumers to rely more and more, on a more benign source of energy, namely, natural gas.
Currently Qatar, Oman and UAE are among the major LNG exporters contributing together 23% of world’s total LNG exports, which has a positive affect on their economies. However we believe that opening up the energy sector to foreign investments and expertise could increase the production. GCC governments are considering permitting foreign participation in their hydrocarbon sector. They are also constructing several expansion plans that are expected to finish within the next 5 years.
We believe that private sector in GCC region is large enough and has shown resilience to handle mega-projects in other sectors. We expect that the energy sector too will be benefited by the entry of the private local players who have local knowledge and skills and can definitely add value while working side by side with the public sector.
Returns across economic sectors can be highly variable, therefore, GCC countries are looking for ways to diversify their economies. Bahrain has led the way, privatizing non-essential services and instituting labor market reform. Oman has invested heavily in tourism and encouraged the revival of traditional industries such as fishing. Other GCC states have looked to banking and financial services, with Qatar, Kuwait, the UAE and Bahrain vying to be the region’s financial hub.
Natural gas intra GCC trading is expected to increase especially with major projects being constructed in the region. Examples of these projects could be the Dolphin project which aims to develop links between Qatar, the UAE and Oman. Qatar also has held discussions regarding supplying gas to Bahrain and Kuwait through pipelines. - Global Investment House
