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| 15 November, 2017

Energy subsidies can't continue, says UAE minister

United Arab Emirates' Oil Minister Suhail Mohamed Al Mazrouei (C) arrives at a meeting of Gulf Arab oil ministers in Riyadh September 24, 2013. REUTERS

United Arab Emirates' Oil Minister Suhail Mohamed Al Mazrouei (C) arrives at a meeting of Gulf Arab oil ministers in Riyadh September 24, 2013. REUTERS

REUTERS/FAISAL NASSER

Subsidies have incentivised burning lots of fuel that could be saved for industry or other purposes

UAE Minister for Energy Suhail bin Mohammed Faraj Al Mazrouei called for greater efficiencies as the world is moving towards LNG and natural gas. He pointed out that the subsidy on gas and electricity sold to power-generating companies cannot continue for long.

During a panel discussion at the Abu Dhabi International Petroleum Exhibition and Conference (Adipec), he said none of the ministers would like to talk about average efficiencies of turbine fleets.

"It is an area of improvement. Something needs to be done as soon as possible. Some of the gas supply that goes to the power sector is subsidised and it cannot stay for long. That subsidy has incentivised burning lots of fuel that could be saved for industry or other purposes. We have to work towards efficiencies. Through efficiencies, we can save a lot of gas which is burnt today. It will make our environment cleaner and the excess gas we save will supply us for future requirements, especially in the power sector."

The minister noted that LNG is an efficient and clean source of energy. "It will reduce emissions, fossil fuel consumption, improve deforestation and also environmental conditions in general."

Al Mazrouei noted that Adnoc is working on gas networking - an interconnection in the region. The minister spoke about trading in power instead of selling gas.

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"A power trading such as in Europe and other places has been proven to be beneficial for all. This is the future of the Middle East," the minister said.

"Middle East is going to be a power house, first of all within the region and possibly to Europe in the next 10 to 20 years if we do things right. We have to stop burning gas at lower efficient turbines because it's subsidised by the government," he reiterated.

Meanwhile, Bahrain Minister of Oil Sheikh Mohammed bin Khalifa Al Khalifa said LNG and natural gas will be the trend for next few years. "There will be an oversupply next year. There is 40 million tonnes of LNG coming into the market."

He said it is difficult to price gas now. "It is challenging looking at gas supply contracts. It will be good for the gas business to have a short period of oversupply to increase the market size."

Asia driving LNG demand
Separately, top industry experts said that growing demand from Asia, particularly from China, will underpin market growth for LNG but importers are also pushing to benefit from more flexible pricing.

Cheniere Energy executive vice-president and chief commercial officer Anatol Feygin said Asia accounts for 70 per cent of global LNG imports. He predicts that China, which first imported LNG in 2006, will become the largest importer after Japan "within a year or two" as the market continues to expand.

"It has been growing at around 2.5 million tonnes per annum on average over the past decade," said Feygin.

"We see that growth rate increasing, possibly more than doubling, over the next three to five years and probably well beyond that, as China's economy continues to grow, urbanise and as it aims to improve urban air quality and control carbon emissions."

With more competition among suppliers, there is strong pressure to move away from the multi-year contracts that previously dominated the LNG trade. Importers who once wanted contracts that locked in their share of a limited supply for several years now want short-term deals so they can benefit in a buyer's market.

Kunio Nohata, a member of the board, senior executive officer and chief executive of the power business division at Tokyo Gas, said that to offer reasonable gas prices to customers, the company needs to pursue a competitive LNG price.

"Tokyo Gas has been developing and enhancing its gas and LNG value chain by tapping new markets and increasing value to our customers," said Nohata.

Feygin expects new supply will be needed early in the next decade to meet predicted demand growth, but that US exporters will most likely expand existing operations, which have infrastructure already in place, rather than commit to greenfield projects.

"We see the global market evolving rapidly at present, and the speed of change looks set to increase as US volumes ramp up over the next few years," Feygin said. "However, I also think we are still quite a way from being a fully commoditised product, like crude oil, for example."

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