Persistent natural gas shortage persists in the Middle East

09-Oct-09

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. Despite abundant reserves, the Middle East continues to face a shortage of natural gas, that is gradually being felt in global markets, as per a report in ICIS. This 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. Also, reduced oil production rates in countries like Saudi Arabia has led to corresponding decreases in propane availability affecting the operations of some polypropylene (PP) plants. Qatar, which shares its gas fields with Iran, is also seeing delays in the completion of new gas projects. The second phase of the Al-Khaleej gas project has been delayed by about 6 months and is estimated to be commissioned by early 2010. Kuwait continues to be challenged with a shortage of gas supplies and has become the first country in the Middle East to start LNG imports to satisfy its increasing gas demand. The oil price boom witnessed before the onset of the global economic meltdown is the key reason for the gas problem as it triggered a series of infrastructure development and spurred economic activity in the region. Supported by low prices, demand for gas, especially for power generation, has grown much faster than supply. Demand for gas is unlikely to slow, as the Gulf Cooperation Council (GCC) countries are committed to huge investments in the power sector. GCC gas demand is estimated to grow at 6.6% pa, much higher than the 2.2% pa demand growth projected for oil.