Gulf gas shortage a problem for electricity generation

Updated 29 May 2014
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Gulf gas shortage a problem for electricity generation

DUBAI: In the space of just 72 hours last week core OPEC oil producer Kuwait lined up $15 billion worth of gas supply from BP and Royal Dutch Shell to help meet soaring demand.
So why is it that Kuwait — along with neighboring OPEC powers Saudi Arabia and the UAE— is left wanting for gas when the region houses around 30 percent of the world’s resources?
For decades, gas was overlooked while these producers went all out to exploit their vast oil reserves. Political feuds and low local gas prices also slowed development of this clean-burning fuel and held up purchases from nearby Qatar, the world’s top exporter of liquefied natural gas (LNG).
Galloping demand from a population and industrial boom is forcing gradual change, although many billions will be needed to tap the region’s gas. Much of that gas is low in quality and high in sulphur, making it expensive and difficult to extract.
“Most Middle East crude producers are now realizing the economic and environmental benefits of increasing gas production — and, in the near term, gas imports — for their rising power demand,” said Kelli Maleckar of energy consultancy IHS.
Kuwait and the UAE have done just that — boosting their reliance on imported gas to meet power demand, especially in summer when consumption to power air conditioning goes through the roof. Saudi Arabia does not import gas.
Domestic political issues have long delayed Kuwait’s negotiations with oil majors to help tap its gas reserves could also derail its purchases: it has signed a $3 billion five-year LNG deal with BP and a $12 billion six-year LNG deal with Shell.
After pressure from Kuwaiti lawmakers, an investigation was launched in 2011 into a gas service agreement with Shell.
“Even though Kuwait has signed these (Shell and BP) deals, there is always that risk that a parliamentarian is going to come and say ‘you know what, I would actually like to question this deal’,” said Eman Ebed Alkadi of consultancy Eurasia Group.
Kuwait also signed a short-term gas deal with Qatar last month, but it is unlikely to depend on Doha in the long term due to a political rift over Doha’s support for Islamists, analysts say.
A long-discussed regional pipeline network would meanwhile go a long way toward solving supply problems, but it has also been hampered by political disputes.
Demand for gas in the Gulf Cooperation Council (GCC) states is likely to rise more than 50 percent, from 256 billion cubic meters (bcm) in 2011 to 400 bcm in 2030, according to IHS.
Objections by top oil exporter Saudi Arabia had halted a plan for Qatar to pipe gas to Kuwait in the past. Many GCC members have long-running border disputes with each other.
Riyadh also opposed Qatar’s pumping gas to the UAE, but the Dolphin Energy project went ahead regardless. It now carries about 2 billion cubic feet of gas per day to the UAE and Oman.
The UAE has exported LNG since the late 1970s, but soaring domestic demand and sluggish progress with its own production have turned it into a net gas importer over the last five years.
In the longer term, Iraq, which invaded Kuwait in 1990, could also provide supply for the region. For now, however, it faces its own acute power shortage.
And Iran, which holds the world’s largest gas reserves, is unlikely to provide a quick supply fix even if it reaches a deal with world powers over its nuclear program and sanctions are lifted.
“(Iran) faces a number of obstacles, among which is a crowded market place of suppliers, neighbors unwilling to pay a higher price for its gas, and its own national financial and operational hurdles,” said Valerie Marcel of Chatham House.
In anticipation of rapidly rising consumption, Saudi Arabia is exploring unconventional gas — “a game changer in our upstream production strategy”, according to Saudi Aramco.
It expects natural gas demand to almost double by 2030 from 2011 levels of 3.5 trillion cubic feet per year.
Saudi Arabia burns a significant amount of its crude to generate electricity and analysts warn that rising consumption will erode the amount available for export.
Petroleum and Mineral Resources Minister Ali Al-Naimi has estimated unconventional gas reserves at over 600 trillion cubic feet — more than double its proven conventional reserves.
“This means that resources in the kingdom are not the problem, but rather how to discover, develop and produce such resources,” said Sadad Al-Husseini, a former top executive at Aramco.


Oil rises after US Navy destroys Iranian drone

Updated 19 July 2019
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Oil rises after US Navy destroys Iranian drone

  • The International Energy Agency is revising its 2019 global oil demand growth forecast to 1.1 million barrels per day
  • Speculators have exited options positions that could have provided exposure to higher prices in the next several years

TOKYO: Oil prices rose more than 1 percent on Friday after the US Navy destroyed an Iranian drone in the Strait of Hormuz, a major chokepoint for global crude flows, again raising tensions in the Middle East.
Brent crude futures were up 82 cents, or 1.3 percent, at $62.75 by 0100 GMT. They closed down 2.7 percent on Thursday, falling for a fourth day.
West Texas Intermediate crude futures firmed 61 cents, or 1.1 percent, at 55.91. They fell 2.6 percent in the previous session.
The United States said on Thursday that a US Navy ship had “destroyed” an Iranian drone in the Strait of Hormuz after the aircraft threatened the vessel, but Iran said it had no information about losing a drone.
The move comes after Britain pledged to defend its shipping interests in the region, while US Central Command chief General Kenneth McKenzie said the United States would work “aggressively” to enable free passage after recent attacks on oil tankers in the Gulf.
Still, the longer-term outlook for oil has grown increasingly bearish.
The International Energy Agency (IEA) is reducing its 2019 oil demand forecast due to a slowing global economy amid a US-China trade spat, its executive director said on Thursday.
The IEA is revising its 2019 global oil demand growth forecast to 1.1 million barrels per day (bpd) and may cut it again if the global economy and especially China shows further weakness, Fatih Birol said.
“China is experiencing its slowest economic growth in the last three decades, so are some of the advanced economies ... if the global economy performs even poorer than we assume, then we may even look at our numbers once again in the next months to come,” Birol told Reuters in an interview.
Last year, the IEA predicted that 2019 oil demand would grow by 1.5 million bpd but had already cut the growth forecast to 1.2 million bpd in June this year.
Speculators have exited options positions that could have provided exposure to higher prices in the next several years, market participants said on Thursday.
US offshore oil and gas production has continued to return to service since Hurricane Barry passed through the Gulf of Mexico last week, triggering platform evacuations and output cuts.
Royal Dutch Shell, a top Gulf producer, said Wednesday it had resumed about 80 percent of its average daily production in the region.