GCC Nations Estimate $18.3 Trillion in Oil and Gas Reserves, but Analysts Expect Gas Oversupply

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Researched by Industrial Info Resources (Sugar Land, Texas)--According to expert opinions, the Middle East is witnessing a growth of 7% per year in demand for power, one of the highest in the world. The six member nations of the Gulf Cooperation Council (GCC)--Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates--are making significant investments in alternative energy sources in an effort to meet the region's increasing power demands.

The agenda of Alter Energy '09, an ongoing conference hosted at the Dubai International Convention and Exhibition Centre, includes discussions on ways to minimize the negative impact of conventional energy projects, opportunities for oil and gas companies in the alternative energy sector, and the feasibility of utilizing solar power and other renewable energy sources in the Middle East.

An economic report released by the Dubai International Financial Centre Authority (DIFCA) (Dubai, United Arab Emirates) states that the six GCC nations have oil and gas reserves worth an estimated $18.3 trillion. The estimate has been determined by assuming a conservative price of $50 per barrel of oil and $9 per million British thermal unit of gas. However, if prices were to increase and reach $100 per barrel of oil and $15 per million British thermal unit of gas, the existing energy reserves of the GCC countries would be worth $37.7 trillion. The DIFCA believes that this wealth is enough for the GCC countries to build and develop diversified economies by investing in education and infrastructure. Dr. Nasser Saidi, Chief Economist of DIFCA, has said that the high oil and gas prices of the last five years have brought about enormous commercial benefits to the GCC countries, and all six nations now have large foreign assets and international reserves.

However, a separate report published by Booz & Company (London, England) in June 2008 tempers the bonanza view. According to the report, the industrial output of the developed nations in 2009, and possibly 2010, will not be positive and that will reduce the demand for natural gas for the first time in global history. Decline in demand and growth of new sources of gas exports could bring about a gas oversupply of 5% to 15%. The forecast is likely to hold true well into the next decade as well. According to Jake Leslie Melville, an energy partner at Booz & Company, demand for gas is closely connected with the industrial production of the developed nations; since the ongoing recession has had a negative impact on industrial output, the decrease in demand for gas is not surprising. Energy-intensive industries, such as the automobile and chemical industries, have brought about the most significant drop in demand for gas. Analysts are of the opinion that output in both industries could be reduced by as much as 25% in 2009. Similarly, the steel industry of North America and Europe is likely to see a 30% drop in output.

The situation will force companies in the natural gas sector to re-evaluate planned projects for a number of years. The declining demand has reduced project finances, and a number of gas infrastructure development projects have had to be delayed or cancelled until there is an increase in demand again. For example, gas liquefaction projects in Bolivia and Russia have been cancelled, while projects in Australia, Egypt, Iran, Nigeria, and Trinidad and Tobago have been put on hold for financial reasons. On the other hand, because of growth predictions made before the recession, a number of projects already are under way in North America. For example, projects that involve export pipelines, new liquefaction plants, and higher production of gas from unconventional sources are being implemented as planned. It is this growth in output, coupled with negative demand, that is likely to bring about a surplus of 5% to 15% in the natural gas market.

Although gas producers in the Middle East have to face the effects of the recession, a number of national oil and gas companies of Egypt, Iran, Qatar and the United Arab Emirates are confident of an economic reversal and are forging ahead with plans to produce higher quantities of natural gas. Demand for gas is expected to increase by 6% in Middle Eastern markets, since a principal driver of the market is the growth in electricity production, the demand for which is growing rapidly.

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