Developments in the GCC Gas Market

Power & Water Middle East Leaders Forum Abu Dhabi, September 2013

1

MENA (esp GCC) highly energy-intensive

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• GCC energy intensity is high in general

• Qatar, Bahrain and UAE are particularly high

• High income levels

• Air-conditioning and desalination

• Energy-intensive industry (aluminium, petrochemicals, LNG, etc)

• Subsidised prices, hence waste and inefficiency

• Focus turns to serving domestic gas market rather than export

19/09/2013 2

MENA gas: The haves and have-nots

Sources: BP, USGS, EIA, Petrenel, Baker Hughes, Manaar research

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f/ye

ar)

Res

erve

s, r

eso

urc

es (

Tcf)

Shale gas potential

Exploration potential

Reserves

Production

Consumption

Only modest growth in long-term gas exports

• Middle East and Africa are

the two major exporting

regions

• Asia is the major importing

region

• Russia supplies Europe

• Big change is the emergence

of North American gas exports

after 2015

• However, total Middle East

gas exports do not grow much

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1990 1995 2000 2005 2010 2015 2020 2025 2030

Gas

exp

ort

s (B

cf/d

ay)

North America S & C America

Europe & Eurasia Middle East

Africa Asia Pacific

Shale gas can reshape gas trade flows

• White: satellite imagery of lights = energy demand

• Purple Red: global gas basins, in increasing size of resources (USGS)

• Yellow: main current and future export routes for Middle East gas

Significant shale gas potential

Less LNG demand in Europe?

North African shale gas to Europe

Australian shale-to-LNG

Lower Chinese (and Indian?) LNG imports

North American shale-to-LNG

v

New conventional gas

More intra-MENA gas trade?

Some growth in MENA gas exports to 2015;

little thereafter

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2008 2015

Gas

exp

ort

s/im

po

rts

(Bcf

/day

)

UAE JordanBahrain KuwaitSyria IranLebanon YemenOman Libya

Source: Fattouh & Stern

• MENA gas export growth virtually all driven by Qatar & Algeria

– Neither will grow much after 2015 – Algerian exports already declining

– Oman, Egypt exports also declining

– New importers appearing (Kuwait, Dubai, Bahrain, Fujairah)

• Possible export growth from East Mediterranean, Iraq, (Libya and Iran?)

• More gas production (including unconventionals) a necessity for regional and global markets

Qatar

Qatar

Algeria

Algeria

Egypt

Egypt

Libya

Libya Oman

Oman Yemen

Saudi Arabia Gas Issues

• High, seasonal demand for

direct crude burn for power

generation

• Fuel shortages last summer

• Delays to Wasit gas

development

• Refining mismatch – too

much fuel oil, not enough

diesel & gasoline

• Major refining expansions,

but primarily for domestic

use

Source: JODI; Manaar research

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du

ctio

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nsu

mp

tio

n (

kbb

l /d

ay)

Saudi Arabia

Apparent CrudeOilConsumption

GasolineConsumption

KerosenesConsumption

DieselConsumption

Fuel OilConsumption

LPGConsumption

Refinery Output

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2009 2010 2011 2012 2013 2014 2015

ADCO ZADCO Upper Zakum ADMA Shah Gas Other Fields

Cap

ital

Exp

end

itu

re (

US$

Bill

ion

)

PROJECTED

7.8

6

9.7 10.5

9.1

7.3

UAE Historical & Projected Capex in Upstream (2009-2015) ______________________________________________________________________________________

HISTORICAL

5.9

2014: Expiration of ADCO current Concession Expected Additional Capex notably in EOR

Abu Dhabi Vision 2030 - Upstream Objective: Oil production capacity ramp up from 2.5 Mbpd in 2011 to 3.5 Mbpd by 2017

8 Source: WoodMackenzie, MEED

Abu Dhabi: gas supply squeezed to 2016

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Ga

s s

up

ply

/d

em

an

d (

Bcf/

da

y)

Bab Hail Shah

IGD AGD-II OGD-III

Imports Existing fields Demand

Dubai: New Supply/Efficiency to Close Demand Gap

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Gas

co

nsu

mp

tio

n /

imp

ort

s (M

Msc

f/d

ay)

Gap

Electricity

LNG imports

Dolphin

ADNOC

Domestic gas production (Margham, DPE)

Gas demand

Gas demand, with coal plant

Gas demand, with coal + efficiency

10

UAE: Gas Imports

Iran Sharjah (Dana Gas / Crescent)

0.5 Bcf/day

Not started (contractual/ technical disputes)

Qatar-UAE/Oman (Dolphin)

2 Bcf/day (+1 ‘interruptible’)

Operational since 2007

Dubai LNG import terminal

3 Mtpa (DUSUP)

Operational since late 2010

Fujairah import terminal (floating)

3.5 Mtpa (IPIC/Mubadala)

Operational 2014/15 19/09/2013 11

Oman: needs unconventional gas to maintain LNG exports

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Ga

s s

up

ply

/d

em

an

d

LNG exports

Oil sector

Industry

Power

Supply

Kuwait: challenges on gas

• The Middle East’s first LNG importer

• LNG imports have cut domestic oil consumption (fuel oil) significantly

• However, progress on Jurassic gas/condensate (tight, sour, deep) limited by

technical & political problems

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Oil

pro

du

ctio

n/c

on

sum

pti

on

, kb

bl/

day

Crude oil exports

Product exports

Domestic consumption

Source: JODI; Manaar research

Qatar gas use: not constrained domestically, unlike other GCC

19/09/2013 14

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1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Gas

use

(B

cf/d

ay)

Gas-to-liquids

Dolphin exports (UAE/Oman)

LNG exports

Other domestic use

Electricity generation

Only Qatar will prevent Middle East LNG exports falling (excluding East Mediterranean)

Mtpa Current Future

Country Import Export Import Export

Qatar 77 Debottleneck 10

Saudi Arabia ?

Iran 10-67 (unlikely)

Yemen YLNG 6.7

Iraq Basra (Shell) 4.5

UAE Dubai FSRU 3 ADGAS 5.6 (expires 2019)

Fujairah FSRU 3.5

Kuwait 3.7 7.5 (2017/18)?)

Oman 10.3 (75% capacity)

Bahrain 3 (2014/15)

Total 6.7 99.6 14+ 14.5+

19/09/2013 15

Attention turning to unconventional gas

• Gulf unconventional plays varied, potentially large

• Sour and contaminated gas (CO2, H2S, nitrogen)

• Tight gas (sands & carbonates)

• Shale gas, condensate and oil

• Deep and ultra-deep

• Mixed resources (e.g. deep, tight and sour)

Source: PacWest; Manaar research

Gas policy motivations vary by country

-10%

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70%

90%

-100% -50% 0% 50% 100%

% p

ow

er

gen

era

tio

n f

rom

oil

Net gas imports

Iran

Saudi Arabia

Yemen Iraq

Libya

Kuwait

Syria

Egypt

Oman

Algeria Qatar

Abu Dhabi Bahrain

Tunisia

UAE - Northern Emirates

Morocco

Jordan

Dubai

Lebanon

Bring gas to domestic consumers

Limit dependence on gas imports

Save domestic oil for export

Grow domestic gas to sustain exports

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Gas pricing reform slowly materialising

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Gas

pri

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qu

ival

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/MM

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LOW LEGACY PRICES

HIGH NEXT-GENERATION PRICES

INTERNATIONAL BENCHMARKS

HIGH-COST FUELS

HIGH NEXT-GENERATION PRICES

Source: Manaar research 18

Gas still competitive, even at higher prices

• Alternative generation (solar, nuclear, coal CCS) is cheaper than LNG or oil

• However, high-cost domestic gas (e.g. unconventional) at ~$8/MMBtu is still

competitive against alternatives

19

Source: Manaar research

19/09/2013

Gas/oil fuel prices $/MMBtu

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Dubai retail rate

Kuwait retail rate

Implications of soaring MENA gas demand

• Need for improved efficiency and end to gas flaring

• Challenges to gas-based industrialisation & job creation

• Need for new gas exploration & development

• Power cuts and economic damage

Robin Mills,

Head of Consulting,

Manaar Energy Consulting,

Dubai, UAE

robin.mills@manaarco.com

+971 4 326 6300

+971 50 293 4668

www.manaarco.com

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