Middle East Emerging as New Demand Center for Liquefied Natural Gas (LNG)

Author : Acumen Research and Consulting

Once known for its large scale LNG exports from Qatar, Middle East has undergone significant transformation in regards to its relationship with LNG and has become a recognized demand center. In 2014, Middle East’s major three importers: Kuwait, UAE, and Israel together received 6.1 bcf of gas equivalent while the number rose to 24.5 bcf in 2016. This was majorly due to more deliveries to traditional importers and increase in the number of new entrants. Over the past three years, the LNG imports in Middle East have grown by more than 380%, during the time when deliveries to traditional importers have remained relatively stagnant or declining.
Middle East was considered as one of the major exporters of liquefied natural gas; however, it has become the fastest growing demand center for LNG in recent years owing to the push from increased demand for domestic gas in the region. Also, as per International Energy Agency (IEA), most infrastructural development in the region has been around natural gas and it accounts for over half of the energy consumption in the region. Electricity and industrial production in Middle East are largely dependent on methane. Over half of the electricity generation in the region is gas-fueled and industrial production is highly reliant on utilizing gas-fuel. IEA estimates that industrial production in Middle East will account for the largest share in gas consumption by 2040. 
Although Middle East is considered as the global gas reserve, around 80% of these reserves are located in Iran and Qatar. Rapidly increasing demand for gas in some countries in the region has resulted in the demand-supply gap. This situation is quite evident in the countries like Kuwait and UAE where the gas consumption has exceeded production by 3.6 Bcm and 12.1 Bcm respectively in 2014. Over the past two years, the countries in Middle East have been increasingly using natural gas to fill the gap between domestic supplies and hidden demand, thus, turning the region into new import destination for LNG. This transition has been supported by sheer decline in LNG prices in past three years driven by the fall in value of oil-linked contracts. Further, availability of Floating Storage and Regasification Units (FSRU) has played a crucial role in region’s conversion into LNG demand center. These FSRUs allows import of LNG and fuel to be reconverted into gaseous state and offers region with maximum import capacity per year, thus support the transformation of region as a new LNG demand center.