Middle East imports of liquefied natural gas are set to decrease as Egypt becomes more self sufficient, but the Arabian Gulf region will need more of the fuel amid a gas deficiency in several states.
Egypt could become a net exporter of energy again as it ramps up production from the Zohr gasfield which started production last year.
The Middle East imported around 16.2 million tonnes (mmt) of LNG last year, roughly 2.1 mmt lower than 2016 levels, mainly due to domestic production offsetting the need for imports in Egypt, according to Facts Global Energy based in London.
“Ramping up gas production from Zohr and West Nile Delta gas projects will eliminate Egypt’s LNG requirements by latest in 2019,” said FGE senior consultant Siamak Adibi.
“[As a consequence] LNG imports into Middle East will decline to possibly 15.5 mmt in 2018 and 14 mmt in 2019,” he said.
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Already Kuwait and the UAE are the only two Gulf states currently importing LNG, but demand from other states will climb as LNG receiving terminals in Bahrain and Sharjah will open in 2019. Gas also forms part of a critical mix in the drive towards cleaner energy in the GCC. "Abu Dhabi and Dubai are diversifying their power mix," says Lucas Schmitt, senior gas and LNG analyst at Wood Mackenzie.
“With nuclear and coal-fired capacity under construction, we expect some displacement of gas in power from the 2020s. Renewables have also started to get greater momentum across the region.”
The UAE unveiled a five-year spending plan of US$109 billion, that will look to prioritise development of gas from its sour reservoirs, which contain high level of sulfur. Saudi Arabia, the world's biggest oil exporter, also plans to double its gas production capacity over the next decade and awarded $4.5bn worth of contracts in November to boost production, particularly offshore. However, there still remains a deficit of 2 to 3 billion cubic feet a day of gas in the region, says Mr Adibi. And the only option to overcome any near-term shortfalls will remain through imports.
LNG imports into the Gulf states will recover from 6 mmt in 2017 to over 7 mmt in 2018, nearly 9 mmt by 2019, and over 10.5 mmt by 2020, according to FGE estimates.
“Post 2020, LNG imports into the Gulf countries will continue to increase, in line with more gas consumption for power generation,” said Mr Adibi.
However, with the ongoing crisis with Qatar, the world's largest LNG exporter and a major supplier of gas via pipeline to the UAE and Oman, the region's big consumers of the fuel are looking for other source markets for their gas needs. The demand is likely to be met from increasing imports from the United States and Russia, who have both lined up offers to supply to the Middle East, following a visit by the US energy secretary to the region and the Saudi energy minister's presence at the opening of Russia's arctic LNG facility in December.
The UAE has tapped US supplies since 2016, when it received cargoes from Houston-based Cheniere Energy, while Kuwait, which also faces a gas deficit, signed a 15-year contract with Anglo-Dutch major Shell last month to import the fuel.
While long-term contracts were the norm for the LNG industry, regional buyers now are more keen to buy from the spot market.
"Generally buyers are showing much less appetite for the sort of long-term contracts that used to dominate the LNG market, although multi-year supply deals are still common," says Richard Mallinson, analyst at consultancy Energy Aspects. "Supply tenders in the Middle East and elsewhere will often be won by trading houses or producers that have a portfolio of LNG from multiples sources, meaning the supply could come from various sources over the life of the contract."
With an estimated 350 million cft a day of gas set to come online from 2018 from Egypt’s offshore Zohr gasfield, the North African state, which enjoys warmer political ties with the UAE and Saudi Arabia, could look to supply to its regional neighbours.
Qatar, which is estimated to hold 13 per cent of the world's gas reserves according to the 2017 BP Statistical Review of World Energy, may face a challenging time in 2018 as it looks to secure new markets and contracts amid new supply from Australia hitting the market.
Australia could possibly overtake Qatar as the top LNG exporter this year as it aims to increase LNG exports by 16 per cent from mid-2018 to mid-2019 from new projects
The big East Asian consumers, Japan, South Korea and China are likely to absorb the extra volumes with market share remaining a challenge for Qatar, which last June outlined its plans to ramp up its gas production by 30 per cent over an unspecified timeline.
However, this additional supply is unlikely to enter the market anytime soon.
"Qatar’s plans are more long-term and will only see it significantly increase gas production and LNG exports in four to six years’ time," said Mr Mallinson.