The Gulf blog

Qatar and Iran: on top in Middle East’s gas shortage 2, June 2009

Irony, schadenfreude, poor management or just life, call it what you will but there is going to be a critical shortage of gas in the Middle East according to the FT. Such a notion goes against the grain of popular perceptions of the Middle East as region, for if the region is know for anything it is for its oil. People might assume, therefore, that because of the plentiful supplies of one carbon-based fuel, that there might be equally plentiful supplies of another. To a fair degree such an assumption is correct. Qatar and Iran are two of the top three countries in the world by proven gas supplies. Other Middle Eastern countries have more modest but still far from insignificant supplies. Saudi Arabia has over 7 trillion cubic feet (tcf) of gas supplies at 4% of the world’s proven reserves, the UAE has over 6 tcf of reserves at 3.4% of the world’s supplies and Kuwait has nearly 2 tcf of proven reserves. Compared to their oil reserve equivalent, these supplies are fairly paltry, but compared to, for example, their populations (around 27, 4.6 and 2.6 million respectively) they ought to be easily sufficient. Yet this is clearly not the case if the judicious and sober FT are declaring their need to be ‘critical’.

There are various reasons as to why most GCC states find themselves in this somewhat perplexing situation. Many of these countries have, as the article’s author Andrew England states, a highly escalating demand for energy spurred on by burgeoning populations spending the wealth accumulated in the recent oil-fueled boom. Furthermore, the myopia that the oil fueled boom seems to have instilled on the region in terms of a lack of significant investment in any other industry seems to have further exacerbated issues. Gas, it is now starkly evident, is crucially needed “for power generation, desalination plants and to provide feedstock to the energy intensive industries they have been seeking to lure.” The problems are particularly acute in the summer months when demand for AC is at its peak.

Whilst the recent economic troubles that have afflicted the region have momentarily taken the edge off the gas needs with its dampening effects on demand overall, this is but a temporary phenomenon and “the medium and long-term outlook remains critical.”

Such a situation is, of course, not that bad for Qatar and Iran. Both these countries, sitting atop mountainous stores of gas and sharing the world’s largest gas field, gain extra strategic importance. Kuwait and Qatar are currently in talks over a 5 year supply deal worth around 1.4 million tonnes of LNG per year. Yet, as England notes with an interview with Qatar’s oil and gas minister, Qatar will not necessarily sell their gas to their neighbours for “at the end of the day I [the Minister]  am concerned about what is the best revenue for the country…I’m not in a social security game.” Qatar already has the Dolphin pipeline sending gas to the Emirates and then on to Oman. This can be seen through a pessimistic or an optimistic prism. Either Doha can now exert more authority over the Emirates and Oman or this closer reliance will bring the countries closer together. A Russian-Ukrainian style threat to turn off of the pipes is highly unlikely, outwith extreme provocation or a severe deterioration of relations. And in much the same way, the countries are different, independent and competitive enough to avoid some kind of harmonious new relationship. As usual, the practice will most likely be somewhere in the middle with all concerned knowing that a touch more power has just been ceded to Qatar. Expect their attempts to diversify their supply or seek nuclear technology to increase.

Picture from LNGpedia

Original FT article