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Middle East can expect ‘dash for gas’, Shell exec tells Oman conference

Muscat, Oman (Platts)–12Dec2011/609 am EST/1109 GMT

Shell anticipates a dash for gas in the Middle East to cope with increasing energy demand and expectations that some 60 million people are due to enter its jobs market over the next ten years.

The forecast came from Mark Carne, Shell’s Executive Vice President for the Middle East and North Africa, addressing the Gas Arabia conference in Muscat Monday.

He was backed in this view by BP’s Chief Economist Christof Ruehl, who said that on a global basis, other fuels will continue to grow over the next 20 years, but gas will grow much faster than any other. He noted that BP’s current Energy Outlook to 2030 anticipates an average annual growth for natural gas consumption of 2.1%.

“As Middle East markets such as Kuwait and Dubai import increasing volumes of LNG, I believe it will spark a new interest in gas exploration in the region,” Carne said. “We anticipate a dash for gas in the region and further development of existing resources,” he added.

Carne argued that although gas should play a central role in meeting the energy requirements that lie ahead, the local supply train should contribute more to the gas industry in the region.

He said 90% of the personnel at Shell’s joint ventures in the Middle East and North Africa were nationals of the countries in which they work, “but our supply chains are nowhere near this level of local content.”

“We need to re-think local content; we need to re-engineer our supply chains to enhance and sustain in-country value,” he added.

He tied this to both the need to provide more jobs in the region and as a way of helping answer the question of whether governments would undertake gas development in the region in partnership with IOCs or on their own.

Carne said: “In the next decade, the working population will increase by about 60 million people. So the challenge to government and business is how to create six million jobs a year.”

This meant there was both a real need for major gas projects in region and also an opportunity for more efficient use of gas, he added.

However, when Ruehl discussed energy efficiency, he argued that “the one thing we know about system efficiency is that improvement comes when prices go up. It rarely comes from moral imprecations, which often backfire.”

He added: “I know people don’t like to hear it — it is a function of price more than anything.”

Carne argued that while the region offered opportunities, not least through elimination of gas flaring, it could take a decade to develop its deep sour gas reservoirs.

Both speakers stressed the role of unconventional gas, with Carne noting that unconventional gas is being tested by Petroleum Development Oman in Oman.

Carne expected regional gas consumption to rise 60% in the next decade, with the demand for gas, both regionally and globally, fueled by its availability, affordability and relative environmental acceptability.

The arrival of LNG and unconventional gas would have a profound impact on gas pricing, Ruehl argued. Even pipeline deliveries will be delivered at market prices, he said. In the short term, pipelines will be tied to long-term prices but in the long term, “if there is a enough supply, we will see flexibility extending from LNG markets into pipelines, changing pricing systems even in pipelines.”

Carne said: “For countries importing gas as LNG, you can’t expect to achieve anything other than international pricing. As LNG starts to flow, you are still going to have to compete and pay international prices.”

–John Roberts, [email protected]

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