Please provide an overview of the Middle Eastern social/cultural/economic/political climate and its impact on LNG activities as well as any new developments or trends for 2013 that will impact the Middle East LNG markets.
SK: The Arab Spring and the Iran Sanctions continue to make this an interesting time - both politically and economically - in the Middle East. The five years since the world financial crisis in 2008 has been a period of tremendous upheaval and change. In addition to these headline-making events, there is growing demand for gas in the Middle East for several reasons: 1) as a feedstock for industry - driven by economic diversification and job creation, 2) as a fuel for power; and 3) because of population growth and wealth creation. All of these factors combine to create LNG import opportunities. It may seem odd, but LNG has more opportunities than piped gas in the Middle East. The are many reasons for this: 1) few countries are long on sweet gas, 2) politics often get in the way of cross-border pipelines, 3) LNG offers greater security and flexibility of supply; and 4) somewhat paradoxically, because local gas prices are subsidized as part of the social compact and economic diversification efforts, exporters and importers seem more able to agree on LNG pricing than gas pricing.
Please discuss the emerging role of LNG imports in the Middle East.
SK: Currently, Dubai and Kuwait import LNG through floating storage and regasification unit (FSRU) projects. At first these imports were seasonal (i.e. summer demand for electricity for air conditioning) and on a spot or short-term basis. Now, demand extends into all but the winter months and soon demand will be year round.
In addition, several new import projects are under development. In the UAE, the Emirate of Abu Dhabi is developing a 9 MTPA project in the Emirate of Fujairah on the Indian Ocean outside the Strait of Hormuz. Additionally, Bahrain is developing a 3 MPTA shore-based import facility for 2015. Kuwait is also expected to start developing a shore-based facility to replace its current FSRU. The expansion in Kuwait will increase capacity from 600 MMcf/d to 3 Bcf/d. Outside the Gulf, Jordan and Lebanon are considering import facilities, even though Lebanon hopes to develop offshore gas reserves in the medium term and is pre-qualifying bidders. Lebanon is expected to be a next exporter between 2020 and 2030 and Jordan is developing a 3 MTPA import terminal at Aqaba for 2014.
What do you think the LNG industry will look like 10 years from now?
SK: Ten years from now, I expect the Middle East to have an even more vibrant LNG export and import industry. New export projects are contemplated for Iraq, Israel, Cyprus and Lebanon. During this period, the original Abu Dhabi export contracts will expire and even though Abu Dhabi will be importing LNG through the Emirates LNG project, it is not clear whether Abu Dhabi will renew or re-tender these contracts. Depending on the supply and demand dynamics and the political dynamics, Abu Dhabi may be both an importer and exporter of LNG, possibly relying on the gas from the Shah and Bab fields (once sweetened) as a feedstock. Shell looks like the front-runner to win the mandate to develop the Bab field with ADNOC.
Additionally, Oman is looking to combine the Oman LNG and Qalhat LNG projects. Oman is also developing unconventional gas reserves and has taken steps to reduce gas subsidies to improve the equilibrium in its gas market. Yemen also continues to export LNG but has experienced interruptions because of security issues.
Please provide any additional information pertinent to LNG in your region.
SK: This is an exciting time for the LNG industry in the Middle East, with new import and export projects and opportunities for developers, suppliers, EPC contractors and vessel owners. Hopefully these opportunities will strengthen or create new economic relationships that will, in turn, strengthen political relationships.