02 October 2009 17:17 [Source: ICIS news]
By Malini Hariharan
MUMBAI (ICIS news)--It is a problem that has so simple solution. The ?xml:namespace>
The impact of the shortage, already evident in the feedstock slate for new petrochemical projects, is gradually being felt in markets.
The price rally in many products earlier this year was supported not only by robust demand and delays in new projects but also by lower operating rates at some
The priority during the hot summer months was to supply gas for power production to avoid blackouts. This meant sacrificing gas supplies to the industrial sector in countries such as
The roots of the gas shortage lie in the oil price boom which spurred economic activity in the region. Supported by low prices, demand for gas, especially for power generation, has grown faster than supply.
One energy consultant thinks a shortfall during winter is likely for the next few years as many upstream projects have been delayed due to financial problems and contracting issues.
Foreign investment is crucial to fully develop reserves. But western majors are hesitant given
This has forced
And while the rest of the GCC is keen to draw more gas from
Given this situation, questions have been raised on the future of the three cracker projects planned by Qatar Petroleum (QP) and its partners. Its joint-venture with Honam is on hold while another cracker with Shell Chemical is said to have been delayed to 2015.
A third project with ExxonMobil is progressing slowly. “Various options are being discussed and a final decision has not yet been taken,” says a regional industry source. But he adds that
As the gas shortage intensifies, GCC governments are looking at alternatives, especially to meet requirements of the power sector. In the short term, fuel oil is increasingly being used for power generation.
Efforts are also underway across the GCC to develop non associated gas fields. But in many cases, as in the UAE, these fields have a high sulphur content of around 25-30%. This represents a huge technical challenge for production and processing, points out Justin Dargin, energy researcher, at the Dubai Initiative,
“The production cost of the sour and tight gas tends to hover at around $4-5/m Btu. However, gas is supplied to the internal market at minus $1.50/m Btu. This is the crux of the gas crisis in the Gulf,” he stresses.
Dargin suggests a GCC gas price in the $5-7/m Btu range which would not only make exploration and production attractive but also determine the ‘true’ demand for gas.
“When we look at Gulf gas pricing, there are two interrelated aspects. One is the price of gas as it is sold in the region by the two largest reserves holders,
These governments no longer except such an inexpensive price for their gas, and are refusing further sales until a satisfactory price has been met,” says Dargin.
“The other is the price of gas supplied to the domestic market. If the UAE buys or produces gas at a $4-5/m Btu, and supplies its petrochemical industry for $1.50/m Btu, it is giving a fairly straightforward subsidy to the market. Of course, the gas price in the Gulf, even if liberalised, would likely be less than the price in the West. Even so, it may not be as competitive as before,” he explains.
A dramatic increase in GCC gas prices is unlikely as governments will be under pressure to protect the local industry. But consumers face an unpleasant reality – the cost of gas is rising.
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