The natural gas component of the global energy pie continues to grow, particularly in the Middle East and North Africa (MENA) region, where just a couple of decades ago, as a byproduct of oil production, it was mostly flared.
Today, natural gas plays a leading role at the center stage of the energy sector and understanding its impact and potential may well help determine the industry leaders in the years to come. Analysis by management consulting firm Booz Allen Hamilton highlights key trends, revealing market opportunities for value creation.
The share of gas as a primary fuel source is projected to grow to 28 percent of total energy supply, rapidly gaining on oil which stands today at 40 percent. The remaining 32 percent are distributed among coal, nuclear, solar and wind.
Typically, gas markets pass through three key stages of development: emerging, transition and mature. "The nature of the value creation opportunity depends on the degree of market maturity", observed Vice President of Booz Allen Hamilton, Ibrahim El-Husseini.
In emerging markets, such as Central Asia and the MENA region, there are three main sources of competitive advantage driving value creation: solving the infrastructure bottlenecks, owning or controlling positional assets and the ability to manage complex contractual agreements. "The current emerging market in the MENA region offers many opportunities along the entire value chain", said El-Husseini.
Linking regional demand centers with regional excess supply is one of the hottest current issues. This is not surprising, given that a third of the world's natural gas reserves are located in the region. Combined, the natural gas reserves of Iran, Qatar, Saudi Arabia, the United Arab Emirates (UAE), Algeria, Egypt, Iraq, Kuwait, Libya and Oman account for over 2,100 trillion cubic feet (TCF).
The choice in transportation mode - Liquefied Natural Gas (LNG) or natural gas pipelines - is driven by distance. Despite significant improvement in the cost of LNG over the past decade, LNG remains more competitive than pipelines only over longer distances.
Algeria, Qatar, the UAE, Oman and Libya are the main MENA players, accounting for around 40 percent of the global LNG market of over 100 million tons. However, competition among new LNG projects is intense and has allowed major customers to leverage over-supply to negotiate lower prices for long-term contracts. For example, delivered LNG price in Japan have been dropping at an average annual rate of around three percent over the past 15 years.
The classic strategic play to develop a regional gas market, however, has been via natural gas pipelines, like the Dolphin project, which will link several markets in the Southern Arabian Gulf. The Dolphin project may be the first segment of what could develop into a regional natural gas grid linking large gas reserves with growing regional demand centers.
In setting the stage for similar future plays, the Egypt-Levant-Turkey or the Iran-Subcontinent proposed pipelines, the Dolphin project had to overcome several challenges that typically exist in an emerging market. It had to gain customer commitments, manage contract complexity in a relatively immature legal and financial environment, navigate through sensitive political and rights-of-way issues, exploit the regional debt financing market, leveraging both the public and private sector and finally engage strategic partners to drive the implementation. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
