Analysis: Middle East Gas Demand Creates Supply Shortage Fear

Growing domestic consumption of natural gas in the Middle East and a muted and delayed gas supply response has created growing concern that critical gas shortages will occur in many countries in the Middle East and North Africa (MENA) region, according to a Dec. 27 research report by Ali Aissaoui, senior consultant with Arab Petroleum Investments Corporation (APICORP).

While proved reserves are substantial and their dynamic life fairly long, "acceleration of depletion appears to have reached a critical rate for more than half our large sample of countries." Aissaoui noted that Iran, Kuwait, Saudi Arabia, Egypt and the United Arab Emirates (UAE) have continued to replace a large portion of their extracted reserves; however, Qatar, Yemen, Libya, Iraq, Tunisia, Bahrain, Algeria, Oman and Syria have failed to keep pace with production.

The decline in recent years in the replacement rate for MENA aggregate production may give the alarming impression that MENA is running out of reserves when that is not the case; however, "a more sober interpretation is that either reserve growth of existing fields has reached its peak or, considering the amount of undiscovered resources….reinvestment in E&D [exploration and development] has not been sustained," Aissaoui said.

At the beginning of 2010, MENA was estimated to contain proved gas reserves of 84.5 Tcm, or 45 percent of the world's gas reserves, APICORP said. The region may hold more gas reserves than previously estimated, as the U.S. Geological Survey (USGS) assessment conducted in 2000 only covered 33 provinces of the 88 identified within MENA. APICORP estimates that the region contains more gas reserves than estimated due to undiscovered gas resources in the not yet assessed 55 provinces.

"The remaining non-assessed 55 provinces were probably considered as frontier areas, high-cost plays, either too remote or unconventional, hardly exploitable within the 30-year time span (1995-2025) adopted by the USGS for its assessment," Aissaoui said.

The survey also focused on conventional gas, and overlooked tight, deep or contaminated gas areas developed since then in Algeria, Saudi Arabia and the UAE. "The continuum of geologic conditions and the reach of conventional technologies can indeed blur the boundary between conventional and unconventional gas. This fuzziness, however, should not deter us from extrapolating USGS-2000 assessment to the 55 non-assessed provinces," Aissaoui said.

Aissaoui notes that the bulk of undiscovered resources are expected to be unconventional, heralding a gas revolution similar to that taking place in the U.S. Aissaoui quotes Thomas S. Ahlbrandt, who led the USGS-2000 assessment, as saying that MENA is rich in unconventional gas plays as well as conventional gas, largely due to the richness of its source rocks, and noting that U.S. source rocks are modest compared to the Silurian, Jurassic, Cretaceous and Tertiary source rocks in MENA. The Silurian is a huge unconventional Basin Center Gas Accumulations target in Algeria, Libya, Saudi Arabia, Iraq and Jordan.

Saudi Arabia and Iran are the largest prospect for undiscovered resources and volume growth should not come as a surprise, Aissaoui quoted Ahlbrandt as saying, since the South Pars and North Field are actually the conventional leg of a huge unconventional gas accumulation. However, the costs, manpower and technology required to develop these reserves means the development process will take time. "The key challenge is for MENA policy makers to create the right climate for such companies to invest and re-invest," the report said.

Opportunities for E&D seem to be the greatest for Saudi Arabia and Iran, followed by Qatar, Iraq, the UAE and Algeria. Opportunities for E&D exist to a lesser extent in Oman, Jordan, Libya, Yemen and Egypt. However, these opportunities will be shifting towards unconventional gas, and will entail significantly higher costs of finding and development.

"Faced with structurally lower netback prices, MENA gas exporting countries have little choice but to raise domestic prices as part of a more conducive climate for investment and re-investment. Obviously, this is even more so the case for the non-gas-exporting countries," said Aissaoui.


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