The Contradictions of the Brave New Gas World

 In terms of the member states of the Gulf Cooperation Council (GCC), the global gas glut over the past several years offers some advantages and disadvantages that must be understood to perceive how the region will evolve over the next several years.

For the GCC gas exporting countries, the consensus is that the gas glut that the IEA predicts will last over the next several years, primarily due to increased gas production in North America and Australia, would not be favorable for them. This would be because, as is commonly stated, their LNG market share would decrease and LNG prices would remain relatively depressed reducing their foreign revenue. However, as there are only three Gulf gas exporting countries at the moment, the UAE, Oman and Qatar, additionally LNG export would not negatively impact the Gulf as a whole. However, shale gas production in various jurisdictions, such as North America, Australia and China, would undoubtedly intensify global petrochemical market competition.

This is due not just to the additional quantity of gas available for domestic petrochemical production, but also to the dual dynamic of the development of less costly shale gas production technology and the depressed oil-linked gas prices at the moment. These two factors will cause petrochemical production, at least in North America, to compete with Gulf petrochemicals on price, at precisely the  moment when the Gulf economies can scarcely afford it. 

But, to return to the impact of LNG, it is truly only Qatar that could be potentially impacted negatively as Oman and the UAE have been facing burgeoning gas demand since the past decade (of approximately 6 percent per annum). Due to increased domestic gas demand, they both expect to significantly reduce or completely cease their gas export plans by the turn of the decade and reroute gas to the domestic market. Therefore, we can expect that most of the Gulf countries (with the exception of Qatar) would benefit from increased gas on the global market because of more import opportunities at competitive prices.

While Saudi Arabia is not yet considering LNG import, although it potentially could in the midterm as there are many strategic economic changes on the horizon. the purchase of American shale gas companies has manifold positive developments..The import of American shale gas technology, and joint venturing with these shale gas companies, would allow Saudi Arabia the technology and technical skill set transfer necessary to exploit its own shale and tight gas reserves. And, this would serve as a beacon for other Gulf countries. 

Additionally, most of the Gulf countries will find that having access to competitively priced LNG will allow them to continue the rapid expansion of their downstream gas industries and fuel their power sectors. And, there are new opportunities as well that a few Gulf countries are exploring. These include strategic investment in North American or Australian gas fields/LNG plants, much of this is to ensure potential security of supply if they decide to import. Yet, in the case of Qatar, this investment is to diversify its LNG presence to be able to not just attempt to compete with North American LNG, but to sync with it, and hedge its gas export strategy. 

Indeed, we are living in a brave new world, one that would be scarcely imaginable a mere six years ago. A world where global petrochemical investment has been relocating to the U.S., a world where Gulf countries are not only investing in North American LNG, but actively considering importing gas from there. A world where the Gulf, a region awash in subsurface gas, but has been facing supply disruptions since at least 2008. However, as the common refrain for the Chinese ideogram goes, and I am not certain as to its correctness, but, in chaos, there lies opportunity. And, this is certainly the case if the Gulf countries take advantage of this rapidly evolving gas market.