Prospects for energy integration in the GCC

Mar 14, 2009 01:00 AM

Dubai Initiative Fellow Justin Dargin spoke on March 3 about "Prospects for Energy Integration in the GCC" at the latest lecture in the School's Research Seminar series.
Mr Dargin presented an overview of the energy sector in the GCC, and noted that although the region possesses 25 % of world natural gas reserves, it is currently experiencing an energy shortage because the region's natural gas has not been exploited effectively.

Dargin pointed out that power demand in the GCC has grown 8-9 % during the last several years-the highest rate of growth in the world-and that the GCC will need another 60 GW of power by 2015.
The region is utilizing a variety of strategies to cope with power demand, including renewable sources, nuclear energy, oil, conservation and coal. However, more efficient exploitation of the region's natural gas reserves and increased infrastructural interconnectivity among the GCC states are urgent priorities.

What has caused the shortage of natural gas supplies in theGCC while Qatar, Iran, Iraq and the UAE have large reserves?
According to Dargin, Qatar has placed a moratorium on exploitation of additional supplies, while the UAE's natural gas contains impurities and is difficult to extract. Iraq presents its own difficult set of challenges, while Iran faces external sanctions, price disputes and domestic problems. Moreover, abnormally low price distortions have created a disincentive for investment.

What can be done?
To begin, Dargin asserted that a set GCC gas price should be established in the range of $ 5-7 mm Btu. With a higher price, he noted, the "true" demand for gas in the region will become apparent.
Dargin pointed to regional infrastructure integration as an essential component in an effective GCC energy strategy, and noted several recent successes in this regard. Qatar successfully completed the mammoth Dolphin natural gas pipeline, which connects the natural gas pipelines of Qatar, the United Arab Emirates, and Oman, while Phase One of the pan-GCC electricity grid is due to come online in first quarter 2009.

Dargin stressed that the global financial crisis, in fact, heralds an unparalleled opportunity for energy infrastructure expansion, as both commodities and project costs are considerably lower now. He pointed to a figure of $ 48 bn of debt financing which is needed for the GCC energy sector, and stressed that Islamic financing through sukuk bonds are a useful instrument for raising capital.
Finally, he urged Gulf states to utilize their economic stimulus plans to build energy infrastructure.

Justin Dargin is a research fellow at the Dubai Initiative, where he researches energy policy in the Arabian Gulf region. He specializes in carbon trading, oil and gas production in the Gulf, and the legal framework surrounding the Gulf energy sector.

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