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Middle East LNG imports set to soar

Gas shortages will prompt expansion in regional demand for liquefied natural gas

Between 2014 and 2016, LNG imports in the Middle East more than doubled, from 4.1m tonnes a year to 9.9m t/y. Growth is expected to continue accelerating, with another near-doubling by 2020, according to some estimates.

The region certainly has sufficient regasification capacity to make that possible. The projects already in operation—all of which are floating storage and regasification units (FSRU)—have a combined capacity of some 24m t/y. Projects in advanced stages of planning could add another 15-18m t/y by the early 2020s.

The region's list of LNG importers already includes Kuwait, the United Arab Emirates, Israel and Jordan. Bahrain is expected to join them by end-2018 or early next year. Even Saudi Arabia, which has long struggled to produce enough gas to meet its needs, is planning to import LNG. It didn't go unnoticed that the Saudi energy minister, Khalid al-Falih, attended the inauguration of Russia's Yamal LNG project in December.

Other countries in the region that could conceivably become LNG importers include Oman, Lebanon and perhaps even Iraq.

But why is it that so many countries in a region blessed with huge reserves of hydrocarbons are turning to LNG to resolve gas shortages? Between them the nations of the Middle East hold just over two-fifths of the world's proved reserves of natural gas—around 2,830 trillion cubic feet.

Three interrelated factors are at work. Firstly, gas demand in the region has been rising fast, in line with rapid economic growth and fast-growing populations, and spurred on by its relative cheapness. The very low gas prices in the region have stimulated demand and encouraged wasteful use. Large volumes of gas are still flared. And some of the oil producers in the region re-inject a substantial amount to enhance oil recovery.

Secondly, even countries that have large gas reserves have struggled to exploit them. Abu Dhabi has been working to develop its sour gasfields, but has found this hard going because of the cost and complexity. Kuwait has yet to develop non-associated Jurassic reserves, despite more than a decade of trying.

Thirdly, proved gas reserves are not distributed evenly across the region. More than two-fifths are in Iran and just under a third are in Qatar, a combined share of nearly three-quarters. Most of the remainder is shared by Saudi Arabia, the UAE, Iraq and Kuwait.

Power shortages

Kuwait was the first country in the Middle East to import LNG, following several years of severe summer electricity shortages that caused a political crisis. Its first FSRU—Excelerate Energy's Explorer—began operating in 2009 at Mina al-Ahmadi. It was replaced by the larger Golar Igloo, a Golar LNG vessel, in 2014. In 2016, Kuwait was the region's largest importer, with a volume of 3.49m tonnes, which looks like being exceeded by a large margin in 2017. It's now working on a shore-based terminal with capacity of 11m t/y to be located at al-Zour, and likely to start up in the early 2020s.

Not far behind Kuwait in turning to LNG to resolve gas shortages was the UAE. Its first FSRU, the Golar Freeze, started up in Dubai's Jebel Ali in 2010. It has since been replaced by a larger vessel, Excelerate's Explorer. In 2016, Dubai imported 3.1m tonnes.

A second FSRU, Excelerate Energy's Excelerate, started up at Ruwais in Abu Dhabi in August 2016. To date it has received only a handful of cargoes from Abu Dhabi's own LNG export facilities at Das Island. A third project is being planned by Sharjah, to be located at Hamriyah, with a target start-up date of 2020.

The next two countries to turn to LNG both did so because Egypt stopped exporting gas to them via the Arab Gas Pipeline. Israel's import facility consists of a submerged turret loading buoy located offshore Hadera. Since start-up in 2013, imports have been modest, reaching just 0.28m tonnes in 2016.

By contrast, Jordan's imports have ramped up quickly since start-up in 2015, reaching 3.1m tonnes in 2016 in an effort to reduce the amount of oil being burnt to generate electricity.

Bahrain's planned terminal will consist of a platform-mounted regasification facility with a floating storage unit alongside. Bahrain has been re-injecting a lot of its gas production and wants to expand its world-class aluminium smelter.

Just how quickly Middle East import volumes will grow over the coming decade will be dictated to a large extent by the policies that individual countries choose to follow, implying a wide margin of uncertainty. What experience so far has demonstrated is how easily and quickly LNG imports can be ramped up using FSRUs—a technology once ridiculed by sceptics in the industry.

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