ABU DHABI, 4 May 2006 — Gulf Arab states should partially liberalize natural gas prices to accelerate non-associated gas development in the energy-producing region while maintaining industrial sector growth, experts said.
The region is set to experience massive increase in demand for gas, driven by population and GDP growth as well as the establishment of energy-hungry industries.
And low prices in inter-regional natural gas contracts are not expected to be repeated again as producers seek to maximize sales prices for new projects, said Martin Trachsel, vice president Middle East, Shell International Gas and Power.
“Low prices are clearly not sustainable, people will not develop gas at low prices,” he told an energy conference that ended in Abu Dhabi on Tuesday. “Future prices will be higher and will give signals that we need to develop more gas resources.”
A project to supply Iranian gas to the United Arab Emirates has been delayed over price wrangling, with Iran saying prices have risen sharply since the contract was signed. An Iranian official has said the deal penciled in a price of $17.50 per 1,000 cubic meters while the current rate should be near $65.
Dolphin, a $3.5 billion project to pipe Qatari gas to the UAE and Oman, said it had not made any money in marketing because it was committed to delivering gas at the prices sold to it in Qatar plus a transport tariff to customers.
Christophe de Mahiue, managing partner at Mckinsy & Co, said regulated, low gas prices which are disconnected from global crude and LNG prices provide limited incentive for gas exploration and development. He said prices should be partially liberalized and linked to export parity prices for LNG. “What I know from talking to clients in the region, is that everyone is hunting for gas,” he told the conference.
Iran has the world’s second largest natural gas reserves while Qatar has the third largest, and has already committed the 77 million tons of LNG it plans to produce by 2010. OPEC giant Saudi Arabia has opened its gas fields to international firms.