News
GCC gas demand to grow at more than twice the oil rate
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Gas demand in the GCC could grow at more than twice the demand for crude oil, says a report. Under current forecasts, demand for gas in the GCC could grow at 6.66 per cent per annum in the period from 2007 to 2012.
This is significantly higher than the region's expected growth in oil demand, which is about 2.99 per cent per year for the same period, says a report issued by Al Mal Capital.
"The GCC gas market is in secular growth," said Bobby Sarkar of Al Mal Capital.
However, the growth rate in the demand of gas will be surpassed by the growth rate in the supply of gas, which is expected to register a CAGR of 7.64 per cent for the same period.
Going forward, high gas prices could cause supply to outpace demand and hence lower prices. "The increase in the supply of gas could lead to a long-term 'normalisation' of prices," says the report. Gas prices are benefiting from increased oil prices and the attractiveness of gas as a feedstock for electricity generation plants. As gas supply is projected to rise in order to capitalise on higher gas prices, it could bring about a more balanced price outlook in the longer term.
Natural gas supply posted a 2.79 per cent CAGR over the last six years until 2006. This was less than the global gas demand, which posted a 2.86 per cent average growth. While OECD supply growth was almost flat at 0.13 per cent growth on an average in this time period, non-OECD made up for the shortfall by growing their supply by 4.67 per cent.
Current projections call for a global supply CAGR of 3.21 per cent from 2006-2012, which outpaces the average demand growth of 3.11 per cent over the same period.
Non-OECD supply is reckoned to increase at a CAGR of 3.8 per cent for the next five years to account for 80 per cent of the growth in supply.
Middle East and Eurasia float on three-fourths of the world's gas reserves. Iran, Qatar and Russia account for approximately 60 per cent of the world's gas reserves and hence, these economies are empowered with significant potential for future development.
High oil-price fuelled GDP growth, currently being witnessed in the GCC economies. This is providing impetus to gas demand growth. In effect, the acceleration in gas demand is driven by higher oil prices, said the report. Oil-exporting GCC countries, seeking to capitalise on high oil prices, are likely to consume more gas as a fuel source for upstream oil production, in effect leading to a higher demand for gas.
On the other hand, the GCC's expanding economies need more electricity and thus more natural gas.
The soaring demand for electricity due to the recent dramatic growth in Middle Eastern economies – especially in the GCC's industrial, real estate and construction sectors – has required increased output from GCC power plants, which are predominantly gas-fired, the report pointed out.
The UAE is reckoned to be the third-largest gas supplier in the GCC in the next few years, followed by Qatar and Saudi Arabia.
Collectively, the top three GCC economies will account for 81 per cent of the GCC gas supplied by 2012. Saudi Arabia and the UAE possess the fourth and fifth largest gas reserves in the world, respectively, with several large projects under way to boost the capacity of existing fields. The top three holders of natural gas reserves in the world are Qatar, Iran and Russia.
Global gas demand growth, on the other hand, is projected to increase at a decent clip over the next few years. Natural gas is an essential fuel for the electricity generation and industrial sectors. Therefore, demand growth in natural gas depends significantly on the amount consumed by the electricity and power generation sectors.
From 2000 to 2006, gas demand growth averaged about 2.86 per cent worldwide, reaching 102tcf. According to Al Mal, current projections call for an acceleration in the 2006-2012 global gas consumption CAGR to 3.11 per cent. This implies about 122tcf in total worldwide gas demand by 2012.
There is, however, a significant divergence between OECD and non-OECD demand patterns. Regions outside the OECD made up 80 per cent of the average annual growth historically. Over 2000 to 2006, non-OECD consumption posted a CAGR of 4.72 per cent versus OECD's CAGR of just 1.22 per cent.
Within the OECD, the US is the largest consumer, followed by Europe. In 2007, US industrial sector demand grew at more than two per cent, while residential sector demand grew at more than eight per cent per annum. Non-OECD demand could outpace OECD demand by almost two times over the projection period. Non-OECD demand accounts for 67 per cent of the demand growth for the next five years. China and India are together projected to increase gas consumption over this period. Although gas is a relatively small source of energy for non-OECD Asia, primarily China and India, their reliance on gas as a major source of energy could grow at 4.6 per cent per annum.
Moreover, economic expansion in Mexico and BRIC countries is expected to drive demand growth in near future. Industrial activity and electricity generation in the US, Europe and China could continue to be the two main sectors fuelled by natural gas.
Overall, gas demand should benefit from power generation needs, especially in light of high prices of feedstock substitutes like fuel oil.
Gas is also a cleaner fuel with less CO2 emissions and higher fuel efficiency.
Even as demand for additional oil is reckoned to be overshadowed by the growth in gas demand, the GCC's oil demand and supply is still in a "sweet spot," the report said.
The GCC is expected to build upon its net exporter status in the next four to five years despite the fact that crude supply growth acceleration will remain relatively modest owing to production constraints.
"Considering the GCC's massive reserves and the current high level of oil prices, these economies could soar further because of growing oil wealth, liquidity, and high economic surpluses," said Sarkar.
In absolute terms, GCC oil supply towers over GCC oil demand by a factor of six.
Despite the fact that GCC oil supply growth will remain flattish, nevertheless, the world will have more oil at its disposal thanks to a projected growth in total Opec supply.
For the GCC, analysts at Al Mal reckon an annual average supply growth of 2.25 per cent until 2012. Even this growth represents a slight uptick versus the 2.02 per cent CAGR the Gulf nations posted over 2000-2007.
Led by Saudi Arabia, the GCC countries maintain surplus capacity and are in a position to increase production to meet rising demand from non-OECD nations and relieve high oil prices.
Demand for oil, on the other hand, remains healthy in the GCC, and could grow at 2.99 per cent per annum until 2012. The GCC alone accounts for about seven per cent of the world oil demand growth.
Global oil demand, on the other hand, is expected to remain flattish until prices normalise in regions that do not subsidise oil.
In 2007, total oil consumption was 86.03mmb/d, growing at a CAGR of 1.66 per cent since 2000. Current estimates call for a similar 1.64 per cent average annual growth in oil demand from 2007-2012. This implies oil demand growth could remain flattish, reaching 93.31mmb/d by 2012.
As in the case of oil, there are divergences in OECD and non-OECD demand patterns.
So far, demand growth in emerging markets and Russia trumps OECD by a factor of 12. OECD oil demand has been growing at a meagre 0.31 per cent rate annually for the last seven years, compared to non-OECD's 3.63 per cent annual growth in oil demand.
However, OECD led by North America remains the largest consumer of oil, followed by emerging economies led by China, the GCC and Russia. Looking forward, non-OECD nations, led by Asia, the GCC and Russia will boost demand at CAGR of 3.86 per cent until 2012. This demand could be fuelled by economic growth, industrial activity and rapidly expanding transportation.
Overall, however, global demand growth remains just stable as high oil prices drag down OECD growth. With demand expected to fall in countries where oil is not a subsidised commodity, non-OECD demand growth is reckoned to actually fall by 0.17 per cent from 2007 to 2012.
This is significantly higher than the region's expected growth in oil demand, which is about 2.99 per cent per year for the same period, says a report issued by Al Mal Capital.
"The GCC gas market is in secular growth," said Bobby Sarkar of Al Mal Capital.
However, the growth rate in the demand of gas will be surpassed by the growth rate in the supply of gas, which is expected to register a CAGR of 7.64 per cent for the same period.
Going forward, high gas prices could cause supply to outpace demand and hence lower prices. "The increase in the supply of gas could lead to a long-term 'normalisation' of prices," says the report. Gas prices are benefiting from increased oil prices and the attractiveness of gas as a feedstock for electricity generation plants. As gas supply is projected to rise in order to capitalise on higher gas prices, it could bring about a more balanced price outlook in the longer term.
Natural gas supply posted a 2.79 per cent CAGR over the last six years until 2006. This was less than the global gas demand, which posted a 2.86 per cent average growth. While OECD supply growth was almost flat at 0.13 per cent growth on an average in this time period, non-OECD made up for the shortfall by growing their supply by 4.67 per cent.
Current projections call for a global supply CAGR of 3.21 per cent from 2006-2012, which outpaces the average demand growth of 3.11 per cent over the same period.
Non-OECD supply is reckoned to increase at a CAGR of 3.8 per cent for the next five years to account for 80 per cent of the growth in supply.
Middle East and Eurasia float on three-fourths of the world's gas reserves. Iran, Qatar and Russia account for approximately 60 per cent of the world's gas reserves and hence, these economies are empowered with significant potential for future development.
High oil-price fuelled GDP growth, currently being witnessed in the GCC economies. This is providing impetus to gas demand growth. In effect, the acceleration in gas demand is driven by higher oil prices, said the report. Oil-exporting GCC countries, seeking to capitalise on high oil prices, are likely to consume more gas as a fuel source for upstream oil production, in effect leading to a higher demand for gas.
On the other hand, the GCC's expanding economies need more electricity and thus more natural gas.
The soaring demand for electricity due to the recent dramatic growth in Middle Eastern economies – especially in the GCC's industrial, real estate and construction sectors – has required increased output from GCC power plants, which are predominantly gas-fired, the report pointed out.
The UAE is reckoned to be the third-largest gas supplier in the GCC in the next few years, followed by Qatar and Saudi Arabia.
Collectively, the top three GCC economies will account for 81 per cent of the GCC gas supplied by 2012. Saudi Arabia and the UAE possess the fourth and fifth largest gas reserves in the world, respectively, with several large projects under way to boost the capacity of existing fields. The top three holders of natural gas reserves in the world are Qatar, Iran and Russia.
Global gas demand growth, on the other hand, is projected to increase at a decent clip over the next few years. Natural gas is an essential fuel for the electricity generation and industrial sectors. Therefore, demand growth in natural gas depends significantly on the amount consumed by the electricity and power generation sectors.
From 2000 to 2006, gas demand growth averaged about 2.86 per cent worldwide, reaching 102tcf. According to Al Mal, current projections call for an acceleration in the 2006-2012 global gas consumption CAGR to 3.11 per cent. This implies about 122tcf in total worldwide gas demand by 2012.
There is, however, a significant divergence between OECD and non-OECD demand patterns. Regions outside the OECD made up 80 per cent of the average annual growth historically. Over 2000 to 2006, non-OECD consumption posted a CAGR of 4.72 per cent versus OECD's CAGR of just 1.22 per cent.
Within the OECD, the US is the largest consumer, followed by Europe. In 2007, US industrial sector demand grew at more than two per cent, while residential sector demand grew at more than eight per cent per annum. Non-OECD demand could outpace OECD demand by almost two times over the projection period. Non-OECD demand accounts for 67 per cent of the demand growth for the next five years. China and India are together projected to increase gas consumption over this period. Although gas is a relatively small source of energy for non-OECD Asia, primarily China and India, their reliance on gas as a major source of energy could grow at 4.6 per cent per annum.
Moreover, economic expansion in Mexico and BRIC countries is expected to drive demand growth in near future. Industrial activity and electricity generation in the US, Europe and China could continue to be the two main sectors fuelled by natural gas.
Overall, gas demand should benefit from power generation needs, especially in light of high prices of feedstock substitutes like fuel oil.
Gas is also a cleaner fuel with less CO2 emissions and higher fuel efficiency.
Even as demand for additional oil is reckoned to be overshadowed by the growth in gas demand, the GCC's oil demand and supply is still in a "sweet spot," the report said.
The GCC is expected to build upon its net exporter status in the next four to five years despite the fact that crude supply growth acceleration will remain relatively modest owing to production constraints.
"Considering the GCC's massive reserves and the current high level of oil prices, these economies could soar further because of growing oil wealth, liquidity, and high economic surpluses," said Sarkar.
In absolute terms, GCC oil supply towers over GCC oil demand by a factor of six.
Despite the fact that GCC oil supply growth will remain flattish, nevertheless, the world will have more oil at its disposal thanks to a projected growth in total Opec supply.
For the GCC, analysts at Al Mal reckon an annual average supply growth of 2.25 per cent until 2012. Even this growth represents a slight uptick versus the 2.02 per cent CAGR the Gulf nations posted over 2000-2007.
Led by Saudi Arabia, the GCC countries maintain surplus capacity and are in a position to increase production to meet rising demand from non-OECD nations and relieve high oil prices.
Demand for oil, on the other hand, remains healthy in the GCC, and could grow at 2.99 per cent per annum until 2012. The GCC alone accounts for about seven per cent of the world oil demand growth.
Global oil demand, on the other hand, is expected to remain flattish until prices normalise in regions that do not subsidise oil.
In 2007, total oil consumption was 86.03mmb/d, growing at a CAGR of 1.66 per cent since 2000. Current estimates call for a similar 1.64 per cent average annual growth in oil demand from 2007-2012. This implies oil demand growth could remain flattish, reaching 93.31mmb/d by 2012.
As in the case of oil, there are divergences in OECD and non-OECD demand patterns.
So far, demand growth in emerging markets and Russia trumps OECD by a factor of 12. OECD oil demand has been growing at a meagre 0.31 per cent rate annually for the last seven years, compared to non-OECD's 3.63 per cent annual growth in oil demand.
However, OECD led by North America remains the largest consumer of oil, followed by emerging economies led by China, the GCC and Russia. Looking forward, non-OECD nations, led by Asia, the GCC and Russia will boost demand at CAGR of 3.86 per cent until 2012. This demand could be fuelled by economic growth, industrial activity and rapidly expanding transportation.
Overall, however, global demand growth remains just stable as high oil prices drag down OECD growth. With demand expected to fall in countries where oil is not a subsidised commodity, non-OECD demand growth is reckoned to actually fall by 0.17 per cent from 2007 to 2012.