Liquefied natural gas (LNG) has become a staple energy source in the Middle East and North Africa region, where more than $10 billion is expected to be invested in importing the commodity in the near future. This article shows how the region’s LNG market has evolved over the years and the trends influencing the supply-demand dynamics…
The Middle East and North Africa’s (MENA) thirst for liquefied natural gas (LNG) is far from quenched. By the end of 2017, the region will account for 6.5 percent of the world’s LNG demand—a far cry from 2013, when it represented a mere 1 percent, according to the Arab Petroleum Investment Corp (APICORP). The International Energy Agency forecasts natural gas consumption in MENA to rise from 480 billion cubic meters (bcm) in 2015 to 738 bcm in 2040, paving the way for it to become the world’s second-largest gas-importing region in the foreseeable future.
To secure the region’s LNG supply, initiatives are underway to build permanent terminals and temporary off-shore units, which would beef up its annual capacity from 39.1 billion cubic meters (bcm) in 2016 to 97.3 bcm by 2021, Bloomberg estimates. APICORP reported that around $10.3 billion will also be invested in building these facilities. Despite its significant crude oil reserves base, the region has been heavily reliant on natural gas to power its homes and industries. Rapid population growth and an expanding economy have put enormous pressure on MENA countries’ energy demand. And with natural gas trading at around $3.10 per million British thermal units (mmbtu), it makes good economic sense for governments to turn to this cheaper source of fuel, so they can free up oil for exports. But the region also has an important role to play in the global LNG supply chain, thanks to its strong natural gas reserves. Starting in 1964, with the world’s first liquefaction plant in Algeria, MENA has managed to develop its own export success story, according to Lucas Schmitt, analyst, Gas and Power at Wood Mackenzie. “In the last decade, a wave of new projects started across the region, propelling it close to 50 percent of worldwide nominal LNG production capacity between 2010 and 2015–with Qatar the world’s largest LNG exporter,” he said.
However, in the past years, several factors such as strong regional economic growth, a boom in population, low gas prices and governments’ incentives, have contributed to a surge in domestic gas consumption. “Kuwait was the first to turn to LNG imports in 2009 to help meet seasonal gas needs for power generation, quickly followed by Dubai. Imports have sped up recently with the fast-tracked installation of new floating regasification facilities across the region,” said Schmitt. The widening gulf between supply and demand has put pressure on legacy LNG output in producing countries, such as Algeria. Even more remarkably, Egypt shifted position from the world’s eighth-largest LNG exporter in 2009 to the eighth-largest LNG importer in 2016, on the back of dwindling gas production and soaring gas needs, Schmitt added. Abhay Bhargava, business head, Energy and Environment Practice at Frost & Sullivan, said more than 70 percent of the increase in global LNG consumption over the past decade had been attributed to the Middle East and Asia Pacific countries. “On the demand side, [MENA] countries are predominantly seeking [natural gas] to fuel up the burgeoning power requirement, which has so far been catered to in part by more expensive fuels like diesel and HFO [heavy fuel oil].” In addition, a number of regional countries have been focusing on industrial development, as well as downstream petrochemicals, both of which pose a large potential for natural gas.
Bhargava said that a major contributing factor to the accelerated demand for LNG has been the commodity’s reduced price due to heightened competition among natural gas suppliers, specifically from Australia and North America. “With an excess supply scenario, prices of LNG have fallen over the past few years, and this has made it a more attractive fuel for MENA countries,” he added. This became particularly important as governments found that subsidized crude was no longer sustainable in an era of low oil prices. Bhargava does not see the region’s appetite for LNG waning until LNG prices reach a point where alternative sources become feasible, from a power-generation perspective. “Of course, if the region does achieve success in their domestic LNG production plans, the total imports into the region could decline, though this does appear unlikely in the short to medium term, at least,” he said.
However, Schmitt believes the trend of growing LNG imports to the region could come to an end in the medium term, as pipeline gas from Israel makes its way to Jordan; new gas discoveries potentially turn Egypt back into an LNG exporter and nuclear, coal and renewable projects start in the UAE. “An increasingly oversupplied global LNG market will also provide opportunities for regional LNG importers, particularly in the summer when import requirements peak and spot LNG prices are lower. LNG will prove an economic alternative to fuel growing economies in the long term,” he said.
New LNG projects from Australia and the US will also put pressure on LNG exports from the region, with producers having to adapt to buyers’ changing needs and contracting trends. But he said there is further long-term scope for growth as the MENA region remains home to some of the cheapest gas resources globally. “Qatar recently announced the lifting of its 12-year moratorium on North Field, opening up scope for capacity debottlenecking. And Iran will remain keen to fulfill its ambitions to become a global gas and LNG player,” Schmitt concluded.