The GCC states are sitting on huge volumes of gas, with three members among the top 10 largest global reserve holders. Yet apart from Qatar, the world’s largest LNG exporter, none have sufficiently developed their gas reserves. Several are becoming increasingly dependent on importing gas or seeking substitutes. Saudi Arabia’s power sector is set to continue burning vast quantities of crude oil.

Big plans have been announced for developing gas resources in the GCC, but as yet drilling activity appears relatively muted, and most projects are years away from fruition. The IEA, in ‘Gas 2017,’ it’s five-year global gas market outlook, takes a cautious approach and sees more than half of the Middle East supply gains over the next five years coming from the other side of the Gulf in Iran. Regional supplies are projected to increase 14% by 2022, hitting 651 bcm/year by the latter date.

But strong regional demand growth is set to continue in the coming years. The IEA estimates Middle East gas demand will rise 15% by 2022 to 542 bcm/year – ie well over 80% of projected supply. Nearby Iran accounts for 31bcm of this 71bcm increase, while within the GCC Saudi Arabia and Qatar account for 10bcm and 7bcm respectively.

Chart Iea Steadily Losing Faith In Saudi Arabia’s Gas Development (Bcm: Iea Gas Projection By Year Of Report)

SOURCE: IEA MEDIUM TERM GAS REPORT, MEES.

Chart Saudi Arabia Monthly Crude Burn (‘000 B/D): 2017 Consistently Lower Than 2016

SOURCE: JODI.

OMAN: SUPPLY PRESSURE EASING

Apart from Qatar, Oman is the only net gas exporter in the GCC. It imports around 200mn cfd from Qatar through the Dolphin pipeline, but exported 1.1bn cfd (8.1mn tons) of LNG in 2016, resulting in net exports of 900mn cfd. Oman’s LNG exports have increasingly been under pressure from rising domestic consumption. But they received a boost last year with lower consumption from power stations, and are about to get a further boost from new production.

The 1bn cfd BP-operated Khazzan gas field is scheduled to start producing in early September with the start-up of the first of two 500mn cfd gas processing trains, Oil Ministry Undersecretary Salim al-Aufi tells the state Oman News Agency. Mr Aufi says the second train will start up in early 2018.

Omani gas supplies (production plus imports) averaged 3.94bn cfd in 2016 – implying production of around 3.74bn cfd – and stayed around this level in the first five months of 2017. The Khazzan start-up could see supplies hit 4.44bn cfd by the end of the year, and 4.94bn cfd in 2018.

Mr Aufi says Khazzan volumes will be for domestic consumption, with excess volumes exported from Oman’s LNG facilities. Oman had 2.3mn tons/year spare capacity at its 10.4mn t/y LNG export facilities in 2016, equivalent to around 280mn cfd.

Power generation is one of the largest sources of domestic demand. But this dipped to 7.99bcm (770bn cfd) in 2016, the lowest since 2013, thanks to efficiency gains (MEES, 30 June).

Allied with a reduction in projected electricity demand – official forecasts now have peak demand rising to 9.96GW in 2023, against 2021 peak demand of 10.44GW forecast as recently as 2015 (MEES, 17 April 2015) – this will ease the pressure on Omani gas supplies. But there will be additional demand from other sectors. A gas pipeline sending Khazzan gas to the Duqm Special Economic Zone, located halfway between Muscat and Salalah is to be completed in late-2019. Alongside industrial feedstock, gas will be used at a 60,000m³/day desalination plant at Duqm.

Khazzan Phase 2 has yet to receive final approval but is planned to boost field output to 1.5bn cfd in 2020, further easing pressure on Oman’s gas supply.

SAUDI PLANS BIG OUTPUT HIKE…

Saudi Arabia has ambitious plans to increase its gas production by 48% (5.8bn cfd) by 2020. The IEA is much more pessimistic on prospects for gas gains. Although it sees Saudi Arabia securing the second biggest gains in the Middle East over this period, it puts them at just 8%. In fact it has downgraded its projection from last year (see chart).

The IEA’s outlook appears overly pessimistic given that three gas processing plants are set to come online between the middle of last year and 2020 with a total 5.1bn cfd processing capacity. The first plant, the 2.5bn cfd Wasit plant came online last year and is now at full capacity.

Boosting gas output is critical for a number of reasons. First, Energy Minister Khalid al-Falih said in May that increased gas availability will reduce seasonality of domestic crude burn for electricity generation, freeing up volumes for export in summer. The startup of the Wasit gas processing plant in mid-2016 has helped reduce crude burn seasonality, but it is far from eliminated (see chart).

Secondly, the kingdom’s Vision 2030 plan entails an expanded petrochemicals sector in order to maximize revenues and provide an element of diversification, which will require additional gas feedstock. The PetroRabigh Phase 2 expansion is nearly complete and will start up in “mid-2017” according to Aramco’s 2016 Annual Review, released last week. This 2.6mn t/y joint venture with Japan’s Sumitomo will require an additional 30mn cfd of ethane (MEES, 20 May 2016).

Other regional countries are looking to make up for gas shortfalls through imports – Kuwait and the UAE import LNG and are expanding their import capacities, while Bahrain is looking to get in on the act, and the UAE and Oman also import piped gas from Qatar.

But Saudi Arabia has resisted this option. The most economic option would be to import piped gas from neighboring Qatar, but political tensions have prevented this. In fact Saudi Arabia previously scuppered plans for a Qatar-Kuwait gas pipeline which would have to transit Saudi waters (MEES, 27 February 2006).

…BUT GAS DRILLING REMAINS MUTED

Under the National Transformation Program (NTP) raw gas production is to reach 17.8bn cfd by 2020. Beyond this, Aramco plans to double gas production to 23bn cfd over the next 10 years according to CEO Amin Nasser, who was speaking at the World Petroleum Congress (WPC) in Istanbul this week. This is, however, slightly down on the 24bn cfd target he pledged last year (MEES, 14 October 2016).

Aramco processed a record 12bn cfd of raw gas in 2016 according to its 2016 Annual Review, up from 11.6bn cfd the previous year. The increase was down to the startup of the Wasit processing plant, which ramped up to full capacity by the end of the year. With Wasit fully operational for 2017, gas processing ought to break the 2016 figure this year.

The 12bn cfd of raw gas output realized 8.3bn cfd sales gas and 920mn cfd ethane – up from 7.8bn cfd and 790mn cfd respectively in 2016 – for a combined total of 9.2bn cfd. If the NTP target is achieved, this would imply 12.3bn cfd sales gas and 1.2bn cfd ethane in 2020 (13.5bn cfd), while Mr Nasser’s longer term target would result in 15.9bn cfd sales gas and 1.8bn cfd ethane (17.7bn cfd).

The Aramco report says the 75mn cfd Midyan plant is almost complete, which should provide further incremental gains this year. The key development however remains the 2.5bn cfd Fadhili processing plant which is planned to come online in 2019 – like Wasit it is slated to provide 1.7bn cfd.

Fadhili will process 2bn cfd from the offshore Hasbah Phase 2 development and 500mn cfd from the onshore Khursaniyah field.

A consortium of India’s Larsen and Toubro (L&T) and London-listed EMAS Chiyoda Subsea secured a $1.6bn contract to develop the Hasbah second phase in May 2016. Despite the ambitious gas development plans, gas drilling has slipped from recent heights. There were 52 active gas drilling rigs in the first half of the year according to GE’s services subsidiary Baker Hughes, the lowest since H1 2015 (see p7).

Table UAE Gas Balance (Bcm)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Production 50.3 50.2 48.8 51.3 52.3 54.3 54.6 54.2 60.2 61.9
Consumption 49.2 59.5 59.1 60.8 63.2 65.6 66.9 65.9 73.8 76.6
% of production 97.8 118.5 121.1 118.5 120.8 120.8 122.5 121.6 122.6 123.7
surplus/deficit pre-dolphin +1.1 -9.3 -10.3 -9.5 -10.9 -11.3 -12.3 -11.7 -13.6 -14.7
Dolphin Imports 1.8 15.4 17.3 17.4 17.3 17.3 17.8 18.0 17.7 17.9
surplus/deficit with dolphin +2.8 +6.1 +7.0 +7.9 +6.4 +6.0 +5.5 +6.3 +4.1 +3.2
LNG Exports (A Dhabi) 7.0 7.0 6.5 7.3 7.1 6.9 6.2 7.4 6.9 7.1
LNG Imports (Dubai) 0.0 0.0 0.0 0.2 1.4 1.3 1.5 1.7 2.8 3.9
LNG Net Exports 7.0 7.0 6.5 7.1 5.7 5.5 4.7 5.7 4.1 3.2
SOURCE: GIIGNL, BP, JODI, MEES CALCULATIONS.

Map Key UAE Gas Assets

Key UAE Gas Assets

ABU DHABI’S $20BN GAS PLANS

Unlike Saudi Arabia, the UAE has offset its gas shortages through imports and is expanding its LNG import capacity. Although taking advantage of low LNG prices, it has not abandoned plans to develop its own gas reserves and plans to invest $20bn in further development.

The UAE is currently dependent on piped imports from Qatar, putting it in an especially precarious situation given the current political dispute (MEES, 9 June). Increased domestic production would mitigate this.

The UAE’s gas balance has been shrinking for a number of years and even after importing 17.9bcm (1.7bn cfd) of piped gas from Qatar in 2016 it only had 3.2bcm (300mn cfd) spare. A record 3.9bcm (370mn cfd) of LNG was imported, all through Dubai, though new import facilities were added at Ruwais in Abu Dhabi through a 500mn cfd floating storage and regasification unit (FSRU) last year.

The UAE currently has 1.46bn cfd LNG import capacity, with a third, 500mn cfd-capacity, FSRU planned to be added at Sharjah next year (MEES, 19 December 2016), bringing the total capacity to 1.96bn cfd. But this is less than the 2.07bn cfd imported last year and so the UAE remains unable to replace Qatari piped imports, especially with consumption continuing to grow steeply.

Domestic output gains would ease the dependency on imports, but it will be a number of years before they are realized. Output gains in 2015 and 2016 were due to the ramp up of production at the 1bn cfd sour Shah field operated by the Al Hosn joint venture of Adnoc (60%) and US firm Occidental (Oxy; 40%), which provides 500mn cfd sales gas.

Talks are underway to expand Shah output to 1.5bn cfd, implying sales gas of 750mn cfd, but an agreement has yet to be finalized. Adnoc CEO Sultan al-Jabir told Abu Dhabi newspaper The National this week that “Adnoc will capitalize on its success and experience in sour gas development and invest a potential $20bn to develop the Hail, Ghasha, Dalma, Nasr and Shuwaihat fields, which could produce 1.2bn cfd of gas.”

If anything this seems a conservative estimate. Hail and Ghasha have previously been slated to provide a combined 1bn cfd sales gas, with another 300mn cfd from Dalma, bringing the total to 1.3bn cfd without factoring in Nasr and Shuwaihat.

Oxy is likely to be involved in the development of the offshore Hail and Ghasha fields, alongside Austria’s OMV (24.9% owned by Abu Dhabi state firm Mubadala). Both firms have signed up to conduct studies of the fields (MEES, 19 August 2016).

Meanwhile, Germany’s Wintershall and OMV are continuing their appraisal of Shuwaihat (50:50 stakes) – a primarily offshore field. Two wells have now been completed at the field. The second, Shuwaihat-6, is the first well in the field’s onshore portion. It was spudded in November and Wintershall tells MEES the well has been completed. “During six months of drilling and testing operations the team in Abu Dhabi collected all relevant data. Further steps will be discussed with Wintershall’s partners Adnoc and OMV.” Given this, it seems unlikely that the field will be producing in the near term.