Mideast Enters Golden Age of Natural Gas

These are halcyon days for the Mideast Gulf’s gas industry. Output is up almost 200 billion cubic meters per year (19.3 billion cubic feet per day) from a decade ago. And growth is set to continue. By 2030, spearheaded by Qatar’s 48 million ton per year LNG mega-expansion and Saudi Arabia’s $110 billion Jafurah shale gas project, the United Arab Emirates, Saudi Arabia and Qatar alone should be adding over 15 Bcf/d. This is a most improbable renaissance. Just 10-15 years ago: crude burn trajectory in Saudi Arabia appeared out of control, Kuwait was suffering from regular summer blackouts, a looming gas crunch meant Oman had to consider shutting in LNG liquefaction capacity, while the UAE’s northern emirates were forced to burn coal to meet peak summer demand. Today, gas balances for all in the region, except Iraq, are in exponentially better shape. An easing of subsidies, the 2015-16 oil price crash, and a shift to more efficient combined-cycle generation helped curb runaway demand in the early part of last decade. Going forward, huge investment in renewables is key to managing the demands on gas resources. In the UAE’s case, an embrace of nuclear has also been transformational, enabling it to proceed with a new 9.6 million ton/yr LNG project in Fujairah. Such is the scale of future Saudi demand that the 2 Bcf/d Jafurah and another 3.5 Bcf/d of conventional gas additions will probably all be needed in-kingdom. But together with solar, the new gas is targeting displacing crude and fuel oil burn in power generation, freeing up almost 1 million barrels per day of Saudi oil for export.

Qatar, Iran and Iraq — if it ever manages to turn around its gas industry — have the luxury of abundant, low-cost conventional reserves, much of it ultra-cheap associated gas, on which to rely. But for most in the region, expensive unconventional gas is playing and/or will play a key role. The UAE is rolling out a string of multibillion-dollar unconventional developments, both on- and offshore. In Oman, BP’s 1.5 Bcf/d Khazzan tight gas project has reversed a looming gas deficit, not just securing the country’s future as an LNG exporter but enabling a 10% expansion of capacity to 11.4 million tons/yr. Cost optimization is critical with these huge projects, but economics have been enormously boosted by volumes of valuable associated liquids, most of which are exempt from Opec supply restrictions. Jafurah is expected to deliver some 630,000 b/d of condensate and natural gas liquids (NGLs), including 418 million cubic feet per day of ethane. In addition to 32 million tons/yr of LNG, Phase 1 of Qatar’s LNG expansion will produce 260,000 b/d of condensate, 11,000 tons per day of liquefied petroleum gas and 4,000 tons/d of ethane. Abu Dhabi’s 1.5 Bcf/d Ghasha sour gas project comes with a projected 75,000 b/d of crude, 61,000 b/d of condensate, 5,400 tons/d of NGLs, and 8,600 tons/d of sulfur. In addition to Ghasha, the UAE is planning for around 500 MMcf/d from each of the Umm Shaif and Bab gas caps, and 1 Bcf/d from Ruwais- Diyab shale, on top of conventional gas growth.

Energy transition plans will play key roles in shaping gas utilization, with hydrogen, LNG and local industry all placing claims on incremental production. Both the UAE and Saudi Arabia are gearing up to be significant producers of blue hydrogen from natural gas, and it is very possible that additional Qatari gas growth beyond its announced plans could focus on hydrogen. If recent announcements to push a regionwide electricity grid are realized, power generation could soak up the lion’s share of future supply, if Iraq doesn’t step up its gas game. The 2 Bcf/d Dolphin gas project, which expires in 2032, will also be significant. Current UAE plans for a new 9.6 million ton/yr LNG project appear to factor in the loss of Dolphin gas, meaning a continuation of Dolphin flows could theoretically mean a bigger LNG project, notes Siamak Adibi of energy consultancy FGE. With political tensions between Doha and Abu Dhabi easing after the end of the June 2017 to January 2021 blockade on Qatar, he also sees "no problem with renewing" the Dolphin contracts. "[The UAE] can continue importing 2 Bcf/d, and that leaves an even bigger surplus,” Adibi argues. And unlike the UAE’s Das Island LNG exports, which have quality issues, new UAE supplies could flow west to Europe. Oman, whose entire 11.4 million tons/yr of sales volumes will be up for grabs when contracts expire in 2025, could also be an option for the EU as it weans itself off Russian supply, Adibi adds.