Gas Shortage in the GCC: How to Bridge the Gap

Bahrain, Kuwait, Oman, Saudi Arabia, and the United Arab Emirates are facing a reversal of a decades-old status quo: an increasing gas shortage in the region amid a significant supply overhang in the rest of the world. Although the global economic slump has reduced the need for gas in most regions, demand in the Gulf Cooperation Council for power generation from some industrial sectors has far outpaced the region’s gas exploration and production. As a result, GCC countries find themselves in uncharted territory, an almost contradictory position of having to import gas, when they have exported gas for decades.

Five factors have combined to shift the gas supply–demand balance in the GCC to the point where the region now faces a growing gas shortage:

1. Increasing power consumption and the share of gas in power generation

2. Depleting oil fields and the need for gas in enhanced oil recovery

3. Increasing economic emphasis on the steel, aluminum, and petrochemicals sectors

4. Gas exploration and production challenges

5. Long-term gas export commitments limit local supply.

Over the next five years, the shortage will become more acute even if the recession endures, and certainly if regional economies return to pre-recession growth levels. But despite the gloomy outlook, the GCC’s gas shortage can be resolved. GCC countries now have a unique opportunity to address their gas shortage by taking advantage of the significant global supply overhang in the gas markets. The recession has dampened demand for gas in other markets, at the same time that new sources of LNG have come online and North America has increased its production from unconventional sources.

To take advantage of increased supply and balance the region’s demand, various stakeholders in the GCC—NOCs, regulators, and utilities—must work together to develop an integrated, GCC-wide approach, and even consider the development of a GCC gas grid. These stakeholders will have different roles to play in this process.

NOCs should:

Conduct an economic assessment of the provision of imported gas or LNG to utilities, as opposed to crude oil or diesel.
Determine the technical and economic feasibility of importing LNG and negotiate supply contracts.
Invest in alternative technologies for enhanced oil recovery.
Design competitive fiscal terms to attract upstream investments from IOCs.
Work collaboratively with other NOCs to explore the development of a GCC-wide gas grid to manage supply–demand imbalances on a regional basis.
Regulators and national utilities should:
Review current gas and power tariff structures and set up a structured mechanism to increase prices steadily.
Introduce energy-efficiency measures, such as efficiency standards and building codes.
Evaluate the role of nuclear energy and increase penetration of renewable power sources, such as solar energy, in the power portfolio.

Through analysis, planning, and implementation, GCC countries and energy producers can take measured steps to ensure that they are able to keep the lights on in the most economically viable way for decades to come.

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