Natural gas, the Middle East and the $1.1 trillion question

Morteza Nikoubazl/NurPhoto via Reuters

• Region to add 3% more gas in 2024
• But demand is rising more quickly
• Massive investment needed

The Middle East is emerging as the main driver of global demand for natural gas – and production growth.

The region is working to diversify its energy industries, but analysts believe it needs significant investment if it is to become a reliable gas supplier to the rest of the world.

The Middle East’s gas consumption rose by 4.7 percent in 2023, according to research from the International Gas Union. Iran, Iraq, Saudi Arabia, Oman and Qatar were the region’s largest customers and the IGU’s Global Gas Report 2024 forecasts that consumption will rise by another 4.7 percent this year.

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“The Middle East has actively developed industrial zones and special economic zones that have attracted manufacturing companies, with natural gas being a key component of the energy infrastructure,” says Vijay Valecha, chief investment officer at Century Financial.

This is thanks to “its high efficiency, cost-effectiveness and lower environmental impact compared to other fossil fuels”, he adds.

Petrochemical businesses that rely on gas as a feedstock are also fuelling demand.

On the production side, the Middle East is expected to add 26 billion cubic metres (bcm) of gas in 2024 – an increase of 3.7 percent. This places it just behind Russia, which is projected to add 32 bcm.

Last year, the Middle East added 16 bcm of gas from projects including South Pars in Iran, Khazzan-Makarem and Yibal Khuff in Oman and Karish in Israel. 

With consumption rising more rapidly than production, the region could struggle to meet domestic demand, let alone increase exports, without substantial investment, analysts say.

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The Gas Exporting Countries Forum estimates that the Middle East needs to invest $1.1 trillion by 2050 to reach its natural gas production goal of 1,165 bcm.

The region needs “more direct funds, as much of the existing infrastructure is aging and requires modernisation to handle increased capacity and improve efficiency,” says Hatem Ali, a natural gas expert based in Cairo.

“While Saudi Arabia, the UAE, Oman and Qatar invest heavily in domestic infrastructures and new projects, Iran's potential is constrained by international sanctions, and Iraq needs significant investment in infrastructure to become a significant exporter.”

The adoption of artificial intelligence and the planet’s rising temperatures are also likely to spur power demand for data centres and cooling, according to the IGU.

Gas can play a vital role in the energy transition “as it is a cleaner source of energy than coal or fuel”, says Ali Al Riyami, consultant and former director general of marketing at Oman’s Ministry of Energy and Minerals. 

However, if no output is added, the global supply gap could rise to 930-1,300 bcm by 2030 – an increase of more than 20 percent, according to the IGU.

The Swiss-based organisation says global gas production increased by just 0.5 percent in 2023 and is projected to rise by 2.4 percent this year. Meanwhile, demand growth could reach 2.7 percent by the end of 2030.

“Investment in supply and infrastructure is critical to meet the energy demand, as natural supply from existing fields is on the decline,” Menelaos Ydreos, secretary general of the IGUl, tells AGBI. 

Global concerns

Mehdy Touil, Canada-based lead LNG specialist at Calypso commodities, noted that companies including Aramco, QatarEnergy and Adnoc have ventured beyond their regions and invest in global natural gas infrastructure.

“The Middle East understands that diversifying its portfolio is crucial to securing access to key global markets, especially given the current uncertainties like Suez Canal closures or Strait of Hormuz concerns,” he said.

The IGU's predictions run counter to research that suggests the gas market could be at risk of oversupply in the next few years. According to commodities market specialists at Morgan Stanley, more than 150 million tonnes of liquefied natural gas capacity per annum is under construction. 

Valecha points out that 90 percent of the projects expected by 2030 have yet to reach the final investment decision stage, so the future of gas supply is by no means guaranteed. 

“The uncertainty places Gulf states in quite a strong position because they have the capital, stability and customer relationships to deliver,” says Justin Alexander, director of Khalij Economics.