Chances of Launching an Arab Market for Gas Weakened in the Absence of a Declared Regional Price
Walid Khadduri Al-Hayat - 02/03/08//
Natural gas is the fastest growing energy source on global level. This is primarily attributed to its currently cheap price in comparison to the prices of other fuel prices, its limited pollution of the environment, the versatility of its applications such as the generation of electricity and the production of petrochemicals, its usability as a source of energy in light and heavy industries such as ceramics, iron, and aluminum, and in some cases its usability as a fuel for transportation.
Expert studies indicate the possibility of the doubling of global natural gas consumption in the coming period, especially with the increasing use in Japan and Europe. OPEC's figures in this respect indicate that the share of natural gas may rise from 23% of the total energy basket in 2003 up to 30% by 2025.
It is well-known that three quarters of the world natural gas reserves are located in the Middle East and the states of the former Soviet Union. Qatar, Iran and Russia possess about 58% of total reserves. In addition to this, the world largest natural gas field is located in Qatar (marine North Field). Saudi Arabia which possesses huge reserves utilizes natural gas in local industries and has no intention to export it at present as a result of the excessive increase in local consumption, not to mention the anticipated future increase in consumption. Huge reserves are also noted in Algeria, not to mention the UAE, Egypt, Iraq, Yemen, Oman, Bahrain, Syria and Jordan, all of which have long been exporting natural gas and consuming it in locally in various areas.
At the same time, however, several Arab countries lack natural gas when they urgently need it. A few have limited reserves that have either not been satisfactorily developed or which are located at very deep locations that make the cost of extraction and production too high and economically unjustifiable, making imports from neighboring countries far more efficient. Several Arab countries possess abundant volumes of natural gas containing impurities that make their gas harmful to the environment. There are also a few Arab countries with are relying on their abundant volumes of crude oil for local use instead of natural gas.
Recent years have witnessed significant activity with respect to exploring and using free natural gas in several countries such as Saudi Arabia, Egypt, and Libya. Unfortunately, at the same time several Arab countries such as Iraq are still burning natural gas and incurring millions of dollars everyday as they waste an essential source of energy that can be used locally or partially exported to neighboring countries.
Last week, it was announced that as of March 21, Egypt will start exporting natural gas to Egypt via the Arab gas pipe which transports Egyptian gas to neighboring countries and even to Europe. It is worth mentioning that Egypt has recently started exporting gas to Jordan via the same mechanism.
Both Syria and Jordan possess and produce natural gas, but they are in need of additional volumes because their annual local consumption is accelerating rapidly. The UAE too exports gas from Qatar despite its huge reserves and likewise, Bahrain, Kuwait, Oman and Tunisia are trying to export it from neighboring countries despite their huge reserves.
Egypt's natural gas is also expected to reach Lebanon in the foreseeable future as part of the plans designed for the Arab gas pipe. This is not to mention that the pipeline extends all the way to Turkey and then south Europe and all the way to the center of the continent. When the exportation of Egypt's natural gas to Syria was announced, a detailed statement of the different phases of the pipeline and its length in each phase was published. However, as the case is with respect to regional gas export projects such as the Dolphin project to export gas from Qatar to the UAE, the relevant official statements released to the press offered no information about price formulas despite the importance of this issue.
It is not known what justifies the secrecy regarding the regional prices of natural gas or the fear of announcing its pricing formula. Could it be that prices are subsidized by exporting countries? Could these prices be far lower than the current global prices of gas, and could this be so even when gas agreements extend for no less than 20 years?
The secrecy involving the regional pricing formulas for natural gas contribute to delaying the development of Arab industries. It also creates major distortions that delay the establishment and development of these industries because they cannot be built on realistic economic foundations. Sooner or later, they will face problems resulting from unrealistic gas prices (which is a crucial element in assessing the evaluation of these industries and their regional and international competitiveness).
The lack of a realistic or known price is expected to cause significant distortions in the future of Arab industries that rely on exported gas. Things will not differ from the status quo today where national oil companies supply power stations and petrochemical plants with gas at prices that are significantly lower than prevailing international prices. This inflicts significant losses on national oil companies while petrochemical companies declare very high profits only because they procure natural price at discounted prices. Generalizing this localized phenomenon to the rest of the region cannot be expected to bring any benefits. In fact, the opposite is true.
It is worthier to correct this distortion before it becomes too widely spread. Delaying resolve on this vital issue cannot cover up the central problem. Very soon, the concerned governments will have to correct fuel prices to match international levels and by then, citizens will start wondering about the increases in the prices of petroleum products when at the same time, the region floats on lakes of oil and gas and salaries are still too low.
The time for more transparency regarding these agreements has come at least to support the emergence of Arab industries that increasingly depend on natural gas and on the basis clear economic fundamentals. Hopefully, these agreements will allow more expansive use of natural gas within the countries of the region, not to mention the supplying of fuel to generate more electricity by those countries where power outages for longer hours have become more common as a result of failure to procure fuel oil. It is also worth mentioning that many gas-producing Arab countries have started feeding their electricity plants with natural gas and exporting the fuels that were previously used at these plants. Moreover, several countries are supplying their factories with gas or even delivering it to households as the case is in Egypt. Others are using gas as fuel for public transportation. However, the general practice in most Arab countries is to supply gas to electricity stations and local factories at discounted and subsidized prices which significantly fall below global price levels.
At the same time, millions of dollars are declared in annual profits by this project or that. However, this begs the question: what quantitative measures and standards are used to evaluate these industries and how do these measures compare with those of international companies?
*Energy Expert
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