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Gas stakes its claim.

WESTERN INDUSTRIALIZED COUNTRIES could import as much as 70% of their oil in the next ten to 15 years, according to the International Energy Agency (IEA), the West's monitoring body based in Paris. That is more than double the present rate. The IEA projects energy consumption in the OECD countries increasing to more than 45m b/d by the year 2005 from the 1990 level of 38m b/d. It calculates that this would require importing 9m b/d more for a total of 31.4m b/d.

Good news for Opec, which will account for 50% of OECD oil imports. And good news, especially, for the Gulf (and Venezuela) which will be the Opec producers best placed to meet the growth in demand. Just as encouraging is the IEA's price forecast. By 2005, it believes, the average price of a barrel of oil will rise to $30 in 1993 prices, more than a third higher than today. But even if crude prices remain flat in real terms, the West would simply become more dependent on oil imports as its own relatively high-cost oil output is marginalised.

As The Middle East suggested in its last issue, however, the optimistic outlook for Gulf oil should be qualified by the growing popularity of gas. While overall consumption of oil is expected to increase, the IEA predicts oil's share of total world energy requirements will continue to decline from 39% at present to 37%. Gas, on the other hand, is seen improving its market share by 3% to 24%.

Encouraging prospects for gas are reinforced by recent studies of regional demand. Wood MacKenzie, the Edinburgh-based energy analyst, foresees the gas market in Europe enjoying a period of sustained growth over the next 20 years. While demand is expected to increase by an annual average of 3.1% for the present decade, a critical supply gap is looming which requires large new volumes of gas to be imported. Wood MacKenzie anticipates existing supplies falling short of demand by 96bn cubic metres in 2000 and 360bn cubic metres in 2010. "Although we consider that significant, additional indigenous production above currently contracted levels is possible from the North Sea," says the analysis, "the remaining gap in supply during the late 1990s is a major concern."

In North America, meanwhile, there will be a "real boom" in gas production, according to Petroleum Analysis, a New York consultancy. Throughout most of the 1980s, the gas industry in the United States was plagued by overcapacity. Supply and demand are now moving back into balance as clean-burning gas finds favour over oil and coal. Gas demand looks set to increase steadily at 1.4% a year.

The most exciting growth market for gas, however, is the Asia/Pacific area. The monthly Opec Bulletin reports that the share of natural gas in total energy consumption in that region tripled in the period 1973-1989 to 7.1%. Oil's share by contrast fell from 48% to 36% as governments promote the use of natural gas over other energy sources. Total of France estimates that the gas share of the total energy mix in the Asia/Pacific region will rise to 20% in 2000 and 25% in 2020.

Who stands to benefit in the Middle East from the growing demand for gas? Primarily, those countries which are investing in liquid natural gas (LNG) schemes. Algeria and the former Soviet republics of Central Asia are well-placed to feed gas to Europe through trans-continental pipeline systems, but LNG transported by tankers offers far greater marketing flexibility.

Algerian LNG capacity stood at 19bn cubic metres a year in 1990. It is planned to rise to around 100bn cubic metres by 2000 and maybe as high as 150bn cubic metres ten years later. Libya has similarly ambitious plans. From just 1.2bn cubic metres in 1990, it hopes to be able to produce over 30bn cubic metres by the end of the century and at least 40bn cubic metres in 2010. Gulf LNG projects are much smaller by comparison. Abu Dhabi hopes to supply up to 8bn cubic metres by 2010, while Qatar could produce anywhere up to 16bn cubic metres.

Oil will remain the staple source of world energy for years to come. But cheap and ecologically-friendly gas is making rapid inroads into the dominance of oil. The Gulf oil producers would do well to look to their gas resources.

That will become all the more urgent if the industrialised countries go ahead with their threatened introduction of carbon taxes and other measures to curb polluting emissions. The International Energy Agency predicts that a tax of $100 per tonne of carbon (equivalent to a huge $12 on each barrel of oil) will be needed even to help stem the rise of emissions.

Carbon taxes are anathema to oil producers because they reduce demand but compensate the exporters with none of the increased price. But in a world worried about the health of the planet, oil is becoming as convenient a target as nuclear power for ecological campaigners. The stage is set for gas to mount a formidable challenge.
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Title Annotation:prospects for the petroleum in the Middle East
Publication:The Middle East
Date:Jun 1, 1993
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