April 26, 2010 / 5:17 PM / 7 years ago

UPDATE 1-Shell says Middle East needs to solve "gas puzzle"

* Short of supply despite holding 40 pct global gas reserves

* Middle East gas demand growing 5 pct annually

(Adds details)

By Simon Webb and Eman Goma

KUWAIT, April 26 (Reuters) - The Middle East needs to solve the conundrum which sees it sitting on 40 percent of the world’s gas reserves and yet suffering from a supply shortage, a senior executive from Royal Dutch Shell (RDSa.L) said on Monday.

Natural gas demand in the region was growing at such a rate that by 2015, total consumption in the Middle East and North Africa (MENA) would be close to that in major European economies, Malcolm Brinded, Shell’s executive director for international upstream, said in a speech at an industry event.

Middle East gas demand was rising at around 5 percent per year, a similar rate to growth in China, he said. By 2015, demand in MENA would be close to 60 billion cubic feet per day, he said.

“Domestic demand is growing, fuelled by economic growth, low gas prices and a gradual switch from oil to gas for power generation. As a result, some Middle East countries face natural gas shortages,” Brinded said.

The region would need to explore new technology and investment in infrastructure as it looked to meet gas demand, Brinded said.

While global gas markets suffer a glut, the only country in the Gulf with gas to spare is Qatar. The rest of the region would burn more if it could in power plants, where oil or oil products are often used, and in heavy industry.

SLOW

Demand for gas has grown rapidly across the region, especially among oil producers that have witnessed a petrodollar-fuelled boom. The world’s top oil exporters have been slow to develop their gas resources to meet the needs of their own economies.

Countries would need to exploit both conventional and non-conventional gas reserves to meet demand, Brinded said.

Much of the region’s gas is regarded as tough to produce, as it is either tight gas - in pockets of rock that require special techniques to produce - or sour gas with high sulphur content that is expensive to clean up.

Of Saudi Arabia’s 260 trillion cubic feet of gas reserves, around 60 percent is at oilfields, Brinded said. Production of that gas is limited by Saudi Arabia’s adherence to OPEC oil curbs.

Of the remaining 100 trillion cubic feet, about 75 percent is tight gas or sour gas, leaving only 25 trillion cubic feet of conventional gas that is not linked to oil output.

Developing the gas would require the region’s governments to pay higher gas prices to encourage international firms to undertake the projects, he said. Internal gas prices in most of the region are subsidised and below benchmark international prices.

Shell has worked on growing its gas business in the Gulf in the past three years.

It signed a preliminary deal in 2008 to capture gas burned off as a by-product at Iraqi oil fields for supply to Iraq’s market and possibly for export.

Iraq said earlier this month it would invite 15 companies by the end of the year to bid to develop three gas fields, adding Shell was among the favoured. [ID:nLDE63D2FQ]

In February, Kuwait signed a 5-year service contract with Shell to develop non-associated gas fields in the country’s north. The Gulf Arab state plans to increase output from the gas fields to 1 billion cubic feet per day (cfd) from around 140 million cfd. [ID:nLM183881]

Shell signed a deal in June 2009 to supply Kuwait, one of the world’s highest per capita consumers of electricity, with liquefied natural gas imports (LNG) to feed its power generation stations during the summer. Shell also plans to supply LNG to Dubai in the United Arab Emirates.

Editing by James Jukwey

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