Polymer price increases seen in H1-09 were supported by robust demand, particularly from China, supply constraints due to delays in the commissioning of projects in China and Middle East; as well as lower operating rates at some Middle East plants due to reduced gas availability. The Middle Eastern countries, despite abundant reserves of oil and natural gas, seem to be on the verge of running short of natural gas. Surprisingly, the Middle East, which has 40% of the world's remaining gas reserves, is struggling to find enough gas to meet its own expected demands. Since natural gas is the key feedstock for most of its petrochemical and downstream projects, the impact of the shortage is gradually being felt globally. Demand for gas is unlikely to slow, as these countries are committed to huge investments in infrastructure and the power sector. The oil price boom in 2008 led to handsome profits for oil producing nations, triggering off economic activity in the region. Also, lower gas prices have increased demand for power generation. GCC gas demand is estimated to grow at 6.6% pa, much higher than the 2.2% pa demand growth projected for oil. Factors behind the power boom in the Middle East:
• Abundant availability of cheap resources, particularly in feed gas and fuels.
• Continuation of subsidies which do not encourage rationalization or efficiency in use.
• Sustainable high oil prices that seem to be permanent that have led to rapid economic growth in the region.
• High population growth in most countries in the region, projected to continue.
• The continuing and growing need for desalinated water, mainly in the Gulf, expeted to increase in other countries in
Few factors such as increasing finance requirements, the need for restructuring, escalating cost of EPC contracts, shortage of appropriate labour suppliers/contractors, etc are likely to moderate this growth .
Increased domestic gas demand, delayed supply response, limited regional pipeline co operation, and below-market pricing are factors that affect the long-term security of gas supply here. Evolution of the region's gas industry has lagged behind that of the oil sector, despite significant gas deposits. Gas was traditionally weaker than crude oil in the Gulf, and suffered from persistent under investment in the 1990�s because there was no financial incentive to upgrade infrastructure. Also, the Middle East region is not uniformly gas rich- Qatar, Iran, Egypt and Saudi Arabia have significant gas reserves, while others like the UAE, Kuwait, Bahrain, Jordan and Syria are relatively gas-poor. Oman and Yemen have chosen to export gas that could otherwise satisfy long term domestic demand. Further, gas reserves alone do not result in available gas supply, as seen in Iran's inability to become an important gas exporter despite its enormous reserves, and limitations faced by Iraq for successful gas development. Since much of the region's gas supply is associated gas rather than non-associated gas, reserves are often not available to supply domestic markets or export markets because re-injection is critical to maintain current levels of crude oil production. The current shortage could be attributed to diversion of gas to power production in the hot summer. Hence power production gained precedence over the industrial sector in the allotment of gas supplies, particularly by countries such as Kuwait. As per ICIS, gas consumption in the Kuwaiti industrial sector has fallen over the past few years from 450 m ft3/day in 2005 to current levels of 370 m-380 m ft3/day (almost 18%). Kuwait continues to face a shortage, and has unloaded its fifth liquefied natural gas (LNG) cargo since its Mina al-Ahmadi LNG terminal became operational in late August 2009, becoming the first country in the Middle East to start LNG imports to satisfy its increasing gas demand. In Kuwait state-owned Qatar Petroleum and its joint-venture project with South Korea's Honam Petrochemical Corp. is on hold while another cracker with global major Shell Chemicals is said to have been delayed to 2015. A third project with US major Exxon Mobil is progressing slowly.
OPEC�s decision to cut oil production has resulted in reduction of associated gas in world number one oil producing nation- Saudi Arabia. Lower availability of propane could affect production at downstream polypropylene plants. Iran and Qatar, which possess the world's second and third-largest gas reserves respectively, are well placed to meet this increased demand. Iran faces a shortage during the winter months because of higher demand of gas for power. This shortage during winter is expected to continue for the next few years as several upstream projects have been delayed due to financial problems and contracting issues. Foreign investment is crucial to fully developing reserves, but western majors are hesitant to invest, given Iran's uncertain political climate, its nuclear ambitions and sanctions by the US. Iran has thus had to step up gas imports from neighbouring Turkmenistan. A new pipeline between the two countries is due to be completed by the end of 2009. However, it could be delayed.
According to Philip R Weems, even the UAE (which owns the world's fifth-largest gas field but primarily has sour gas that is more expensive to extract and process) is suffering from a gas supply shortage, which may exceed more than 1 billion ft3/day. The UAE, specially Dubai, has become increasingly dependent on natural gas to fuel new power and desalination plants and to provide feedstock for new industries. In an attempt to meet domestic demand, the UAE has expanded its gas production over the past 20 years and has been forced to turn to sour gas production for future supplies. Besides domestic production, the UAE is also dependent on the 2 bln ft3/day of Qatari gas it obtains through the Dolphin pipeline.
Due to the current situation, the countries in the region that have been developing their gas reserves successfully are now experiencing development issues. Even Qatar (the only Arab country not dealing with security of supply issues and the world's largest exporter of LNG) is so concerned with meeting domestic needs and ensuring that it does not damage reservoirs through over-production that it has placed a moratorium on further development of its gas resources from the North Field until at least 2012. In 2008, Egypt placed a similar ban on new export projects. Saudi Arabia, home of the fourth largest gas reserves in the world, placed a moratorium on new gas-fired power plants and announced that any future demand will be met by oil-fired power plants instead.
The Middle East supply shortage is also a result of various other factors, including a lack of investment. Specifically, gas demand has not been met by sufficient investment in vital gas infrastructure. According to the International Energy Agency, a significant amount of capital (more than is estimated to be spent from 2008 to 2030) must be invested in resource-rich regions such as the Middle East, where unit costs are lowest. However, due to subsidized prices, gas supplied to the Middle East is extremely inexpensive and is sometimes up to 10 times cheaper than in other regions. As a result of such artificially low regional pricing, companies are less willing to invest in exploration and production for non-LNG supplies and producers have little incentive to sell their gas on the domestic market when they can secure much higher prices elsewhere. Qatar, for instance, has in the past 5 years given priority to supplying Europe, USA and Asia, rather than countries in the Middle East. Such low regional prices are not sustainable in a period of high demand and low supply. In order to avoid critical shortages, gas prices must eventually rise towards global levels, which should in turn increase exploration and production activity.
The lack of gas exploration and development has been further compounded by many restrictions imposed by Middle East countries on investment by international oil and gas companies. However, some Middle Eastern countries are now beginning to encourage foreign investment.
The worldwide shortage of gas exploration assets, equipment and personnel means the Gulf states need to rethink their economic growth and industrial models of the future as power generations rates surge. Sour gas, the Gulf�s primary geological gas assets, also is corrosive and inappropriate for the state-of-the-art downstream industries now emerging in the region. Concern over security of gas supply has become so serious that some governments in the region are looking beyond natural gas for solutions, including towards more oil-fired and coal-fired power plants in the short term (despite their less-environmentally friendly reputations) and towards nuclear and solar power over the long term. Efforts are made across the Gulf countries to develop non associated gas fields, but in many cases, these fields have a high sulphur content of 25-30%. Higher sulphur creates a huge technical challenge for production and processing. The gas deficit has compelled Oman to construct coal fired power plants and the UAE to use expensive crude and diesel liquids for power plants and expensive liquids for power generation during periods of peak summer air conditioning load times. Both the UAE and Oman are conducting studies for billion-dollar coal-fired power plants in the hope of addressing predicted severe electricity shortages due to gas supply issues. Abu Dhabi is building the world's first carbon-neutral and waste-free city, called Masdar, which will be powered by renewable energy, and is even considering nuclear power. The Dolphin Project is the largest cross border venture in the GCC, helping to bring Qatari oil to the UAE market. The growing energy demands of the region have also raised the prospect of nuclear or solar energy projects, or both, as long-term solutions. While progress is being made by countries like the UAE towards energy self-reliance, a perceptible shift in the region's fuel mix will take years to materialize and will not help address immediate shortfalls. Therefore, nuclear or solar energy, or both, are not viable replacements for gas in the foreseeable future, and increasing supplies of gas are, in reality, key to a secure energy future in the short or medium term.