Although the UAE produced more natural gas than it consumed last year, galloping future demand from electricity generation sector and slow growth in gas infrastructure will create shortages, according to a new study.
Gas demand in the UAE will be driven by a robust growth in electricity demand which, in turn, is fuelled by an economic and construction boom and population growth, Kuwait-based Global Investment House said. "Electricity generation in the country is based on gas and oil. Gas provides an estimated 88 per cent and oil 12 per cent of generated electricity," Global said in its report titled 'Dawn of the gas era'.
Also, high oil prices, which have crossed the $135 per barrel barrier, have encouraged oil-producing nations in the Gulf to rely more on natural gas for domestic consumption while reserving more oil for export.
The UAE's natural gas reserves were estimated at 214 tcf, or trillion cubic feet, as of January 1, 2007, ranking the country fifth after Russia, Iran, Qatar and Saudi Arabia. Reserves reached at 216.8 tcf by the end of last year, accounting for 6.4 per cent of Middle East-North Africa-South Asia region reserves and 8.2 per cent of Middle East gas reserves.
The largest reserves of 198.5 Tcf are located in Abu Dhabi. Sharjah, Dubai and Ras Al Khaimah contain 10.7, 4.0 and 1.2 tcf, respectively. In Abu Dhabi, the non-associated Khuff natural gas reservoirs beneath the Umm Shaif and Abu Al Bukhush oil fields rank among the world's largest. According to the BP Review, gas accounted for 65.6 per cent of the UAE's primary energy demand in 2006, with oil taking a 34.4 per cent share. Natural gas consumption reached at 1,559.2 bcf, or billion cubic feet, in 2006 and rose to 1,654.5 bcf in 2007, a growth of 6.1 per cent. Gas production, however, has shown an annual rise of 6.5 per cent in 2007 to 1,891.6 bcf.
The Abu Dhabi National Oil Company (Adnoc) has launched a major push to boost the UAE's oil and gas production. The country is planning to increase production of natural gas by 33 per cent by the year-end to 6.5 bcf per day.
The GCC countries hold a share of 22.7 per cent of the world's total proven natural gas reserves. "We expect the natural gas exploration activities and trade to increase because of growing international and domestic demand," Global said. The world gas reserves increased at a compounded annual growth rate, or CAGR, of 1.9 per cent between 1996 and 2007. By the end of 2007, natural gas reserves of the world stood at 6,448.3 tcf, showing a growth of 0.7 per cent over the previous year.
In 2007, world gas production stood at 19,250 million barrels of oil equivalent, a CAGR 2.5 per cent between 2002 and 2007. Last year, most of the production was from Russia, which contributed 21 per cent of total global production.
World consumption increased with 2002-07 CAGR of 2.4 per cent. The Middle East has registered the highest demand growth with 2002-07 CAGR of 6.1 per cent. However, the largest consumption was in Europe, which accounted for 40 per cent in 2007.
Energy consumption in GCC
A report issued by World Energy Council, along with other studies, estimated the value of investment in energy projects will reach $45.6 billion (Dh167bn) during the coming decade, with Saudi Arabia and the UAE taking the lion's share of these projects.
The energy consumption rate is estimated at 10.7 per cent in the UAE, seven per cent in KSA and between four and six per cent in the other GCC countries. This rise has come as a result of the accelerated economic growth in non-oil sectors, with the real estate and industrial sectors at the forefront of this boom. These sectors are supported by the government for the key role they play in diversifying the economy away from oil revenues.
Demand for power in the GCC has surged by nine per cent. KSA and UAE require 2,000 and 1,500 additional megawatts annually during the coming decade to generate more power to cover the increasing needs.
Natural gas prices
Throughout the past year, natural gas prices have been following an upward trend. The increase can be attributed to the huge rise in oil prices. Henry Hub future contracts hit their current year high on May 11, reaching $11.6/mmBtu, or 10,000 million British thermal units.
Crude oil prices are used as a benchmark to set gas-wellhead prices in international markets. Gas prices are highly subsidised in certain regions, such as the Middle East, North Africa and South Asia.
Global said: "High natural gas prices encourage continued high drilling activity and investments necessary to develop the gas sector. High oil prices also help support the growth of LNG imports and exports to meet the increasing international demand. Nonetheless, there is a cost consequence of high natural gas prices to consumers and energy-intensive industries."
Gas-wellhead prices in international market have shot up by 44.2 per cent from $4.4/mmBtu in 2001 to $6.3/mmBtu in 2007. "We expect crude prices to ease from the current level to $86.7 per barrel in 2011. Thus, the prices of gas are also expected to ease down to $6.4/mmBtu in 2011 after a hike in gas prices to $7/mmBtu in 2008," Global said.