Why Middle East gas will underpin economic growth in the region

As the region works to expand the non-oil economy and cut carbon emissions, the development of natural gas resources is becoming central to development plans

An employee is pictured working at the Bin Omar natural gas station, north of the southern Iraqi port of Basra. AFP

For the past hundred years, Middle East energy has been synonymous with oil. But walk through the plenaries and halls of energy forums in the region these days, and the word you will hear most often is gas.

Everyday hundreds of oil tankers flow though the Arabian Gulf, shipping the oil that has been the region’s biggest export. Oil moves the world, underpins global energy demand and fuels the region’s refineries and petrochemicals production. But natural gas, once an unwanted byproduct of oil, was until recently discarded by flaring, reinjected or simply left in the ground.

No one can afford to do that anymore. Natural gas is quickly becoming central to broader energy strategies across the Middle East. Skyrocketing demand for electric power and industry feedstock, an energy industry in transition, and regional efforts to cut carbon footprints have made natural gas a critical component of future energy policy, and the oil and gas sector is racing to keep up.

Natural gas’s lower carbon emissions explain an important part of its rise in the Middle East. It offers an affordable baseload source of power at half the CO2 emissions of coal with none of the harmful particulate or SOx emissions. Switching to natural gas from coal or oil for baseload power generation may cut emissions quickly enough to have a definitive impact on global carbon footprint and support the transition to renewable forms of energy. In fact, natural gas is projected to remain a primary source of energy for baseload power even as solar and wind power grows due to the continued challenges of storage and availability of such renewable sources.

As nations around the region have worked to build their non-oil economies and reduce their reliance on oil, gas has become the central fuel for powering their growth. With each new factory, every new mall or storefront business established, demand for power notches up ever further. Growth in power demand in Mena has averaged 5 per cent annually over the past decade, among the fastest in the world.

Unlike oil, which is normally sold as a commodity on the global markets, gas is a long-term investment with a multiplier effect on the domestic economy. Natural gas creates a virtuous cycle in domestic markets, delivering clean and inexpensive power that encourages investment in business and in turn fuels further growth in the local economy.

Crescent Petroleum has witnessed this virtuous cycle first-hand. Last year, to commemorate the ten-year anniversary of our production operations in the Kurdistan Region of Iraq, we enlisted the help of PwC to assess the wider socioeconomic and environmental benefits enabled by the gas we had produced. The study found that natural gas, which fuels 80 per cent of the electricity generated in the KRI between 2007 and 2017, contributed between $10.7 billion (Dh39.2bn) and $18.3bn to the KRI’s GDP by delivering reliable and affordable electricity and creating thousands of jobs. Natural gas also helped the region avoid 29 million tonnes of CO2 equivalent over the decade by switching away from diesel to gas generation, saving the Kurdistan Regional Government $19.2bn in the process.

Such figures highlight the remarkable impact of gas, turning it from a wasted byproduct to a valuable fuel of growth and service delivery. As a simple equation, natural gas equals electricity, which drives economic growth, and results in future prosperity.

There remains a major challenge, however. While our region sits atop nearly half of global gas resources, gas production is still relatively limited, at only a sixth of the world’s output. The combination of geopolitics, lack of infrastructure and low gas prices have hampered the production of gas despite growing demand. Fortunately, officials across the region are now working to build new avenues to buttress gas supplies. The region is finally taking concerted action to incentivise exploration and development of domestic gas resources in a major way.

The UAE for example, has set out a focused gas strategy to ensure its self-sustainability. ADNOC’s integrated gas strategy seeks to sustain LNG production to 2040 and make the country self-sufficient in gas while enabling LNG imports to add to supplies from the Dolphin Energy pipeline. Saudi Arabia, too, is working to reinforce gas supply through a broad gas exploration programme.

Nowhere is the need for natural gas development more acute than in Iraq, where an ongoing power crisis has become a central political issue for the government. Iraqi power demand is constrained by wartime damage to transmission, distribution, and generation infrastructure. But it is also limited by the availability of natural gas, much of which is flared as part of oil production.

Iraq is working to develop non-associated gas licences to avoid oil field bottlenecks while capturing associated gas rather than flaring it. Crescent Petroleum is proud to be hosting an in-depth panel on Iraq’s energy future on the sidelines of the World Energy Congress in Abu Dhabi this week with Iraq’s Ministers of Oil and Electricity as well as the Executive Director of the International Energy Agency. The panel aims to outline how Iraq can alleviate its power crisis and fuel the economy in the years to come.

Governments across the Middle East have undoubtedly taken steps to enhance access to natural gas and incentivise development of domestic gas resources. But policy makers must also encourage more private sector players with a proven long-term commitment to the region to invest and develop those resources. The private sector has brought much-needed investment and new thinking to the industry worldwide, such as with the US shale gas revolution, and can serve as an important partner for governments to ensure long-term sustainability of oil and gas reserves. But its role in the regional oil and gas sector has thus far been more limited.

As governments look to attract greater investment into the gas sector, private sector companies like Crescent Petroleum, now in our fifth decade as an oil and gas operator headquartered in the UAE, stand ready to make a positive contribution to the region’s energy development and reinforce the virtuous cycle enabled by natural gas as a key fuel of this century.

Majid Jafar is chief executive of Crescent Petroleum and board managing director of Dana Gas PJSC