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Mena gas producers may face partial shortage

By By Nadim Kawach UAE and Qatar have second-longest gas reserve life in the region after Iran

Natural gas resources in the Middle East and North African (MENA) exceeded 84 trillion cubic metres at the start of 2010 but some producers could face shortages because of steady reservoir depletion, an official study said on Saturday.

As the reserves in some MENA countries are depleting mainly because of low investment, they could eventually raise domestic gas prices to curb supply and ensure enough funds for development of their resources, said the study by the Saudi-based Arab Petroleum Investment Corporation (Apicorp), an affiliate of the 10-nation Organization of Arab Petroleum Exporting Countries (OAPEC).

Its figures showed such gas heavyweights as the UAE, Qatar and Iran have enough resources to continue for at least 50 years, with Iran topping the list, with a reserve life of 61 years. The UAE and Qatar have a gas reserve life of around 58 years while Saudi Arabia's reserve could last 35 years.

"At the start of 2010, MENA proved natural gas reserves were estimated at 84.5 trillion cu ms, representing 45 per cent of the world's total. In recent years the fall off of reserve replacement ratio (RPP) to less than 2x (200 per cent), even though double the world average, may give the alarming impression that MENA is running out of reserves," said the study, sent to Emirates 24|7.

"However, a more sober interpretation is that either reserve growth of existing fields has reached its peak or, considering the amount of undiscovered resources, reinvestment in exploration and development (E&D) has not been sustained," added the study authored by Apicorp senior economist Ali Aissaoui.

The report showed that in the past 10 years Iran, Kuwait, Saudi Arabia, the UAE and Egypt, have continued to replace a large portion of their extracted reserves.
By contrast, Qatar, Yemen, Libya, Iraq, Tunisia, Bahrain, Algeria, Oman and Syria, whose latest RRRs are less than 1x (100%), have failed to keep pace with production, said Aissaoui, an Algerian.

Apart from Qatar, where the facts and circumstances should be considered in connection with the ongoing moratorium on further developments of the giant North Field, the situation appears unmistakably critical for other countries.

"In any case, failing to replace produced reserves can significantly shorten the life of remaining reserves...the ratio of reserve to production (R/P) can provide a practical measure of reserve life. Applied to recent annual production (2009), it amounts to 146 years for MENA as a whole compared to 63 years for the world."

The study noted that for a production growth of 6.6 per cent a year, which corresponds to the last 10-year average, future volumes from remaining reserves would last 36 years. It said this is still comfortably above the conventional 30-year critical time horizon for reserve replacement strategic planning.

"The resulting ratios for Iran, the UAE, Qatar, Kuwait, Algeria and Saudi Arabia are all higher than 30 years. However, apart from Syria, which is at the limit of this critical time horizon, all other countries are beneath it, with Bahrain being in the most unenviable situation," the report said.

"On aggregate, proved reserves in the region are substantial and their dynamic life fairly long. However, acceleration of depletion appears to have reached a critical rate for more than half our large sample of countries."

The study said that if gas production continues not to be replaced in Algeria, Bahrain and to a lesser extent conflict-battered Iraq, this could lead to a supply crunch, obviously sooner for Bahrain than later.

Oman, Syria and Tunisia would face a similar prospect in the absence of imports via respectively the Dolphin Pipeline (Qatari gas to the UAE and Oman), the Arab Gas Pipeline (Egyptian gas to Jordan, Syria and Lebanon), and the transit pipelines to Europe (Algerian gas to Tunisia and Morocco).

"Furthermore, the supply patterns of the UAE, Libya, Saudi Arabia and Kuwait have reached a tipping point that should trigger urgent actions to curb demand. On a country basis the resulting opportunities for E&D appear to be the greatest for Saudi Arabia and Iran, followed by Qatar, Iraq, the UAE, and Algeria. To a lesser extent, opportunities seem to be also present in Oman, Jordan, Libya, Yemen and Egypt," the report said.

"As these opportunities will be shifting towards unconventional gas, they will entail significantly higher costs of funding and development. Faced with structurally lower netback prices, MENA gas exporters have little choice but to raise domestic prices as part of a more conducive climate for investment and re-investment. Obviously, this is even more so the case for the non-gas countries."

The report estimated the proven gas reserves at 29.6 trillion cubic metres (tcm) in Iran, 25.3 tcm in Qatar, 7.9 tcm in Saudi Arabia, 6.4 tcm in the UAE, 4.5 tcm in Algeria, 3.1 tcm in Iraq, 2.2 tcm in Egypt and 1.7 tcm in Kuwait.

Reserve life in years was put at 61 in Iran, 58 in the UAE and Qatar, 47 in Kuwait, 43 in Algeria, 35 in Saudi Arabia, 31 in Yemen, 29 in Syria, 24 in Iraq, 21 in Libya, 17 in Egypt, 11 in Oman, nine in Tunisia and two in Bahrain.

© Emirates 24|7 2010