Image Attribute: Fujairah VLCC Port / Source: The Gulf Intelligence
Abu Dhabi, UAE (March 22nd, 2017) – Fujairah, which hosts the Middle East’s largest commercial oil storage capacity, is the best location in the Gulf to host a Liquefied Natural Gas (LNG) exporting hub, when considering strategic geography, necessary infrastructure and global reputation, according to a majority of respondents to a Gulf Intelligence GIQ Industry Survey.
The U.A.E.’s only port city to sit outside the Straits of Hormuz, Fujairah secured the backing of 74% of the sixty respondents to the industry survey conducted in Abu Dhabi yesterday, which included a diverse range of national energy executives from throughout the Gulf and their international peers based in the region. Ras Laffan, Qatar received the second largest number of votes, while the region’s other LNG exporting terminals in Oman, Yemen, and Abu Dhabi did not receive much support as suitable locations on which to base an LNG exporting hub.
Geography puts the Middle East at the crossroads between Europe, Africa, and Asia, and places it at the heart of the new energy corridor opening up East of Suez to Asia. The potential of maximizing the value of the Middle East’s LNG exports is already clearly illustrated. Qatar is the world’s biggest LNG exporter, while the UAE and Oman have been exporting LNG to Asia for decades. Egypt and Yemen were successful LNG exporters before economic and security turmoil took hold.
“Strategic port locations, easy access to capital, ever-growing infrastructure, healthy volumes of trade, storage facilities, and robust benchmarks are vital to building a strong foundation from which a global LNG ecosystem in the Middle East,” said industry executives who participated in the GIQ Industry Survey.
Maximizing the value of gas reserves and subsequent LNG exports in the Middle East is not a new conversation, but rising regional and global demand means all countries are now paying more attention. Goldman Sachs said LNG was the world’s second most traded commodity in 2015 while BP’s Energy Outlook 2017 forecasts that LNG will grow twice as fast as international gas trade - to account for half of all globally traded gas by 2035 from today’s 32%. Pivoting the spotlight to focus on building an LNG export market makes good business sense, especially against a backdrop of Gulf governments diversifying their energy economics following the ‘collapse’ of oil prices in mid-2014.
Demonstrating much greater flexibility, including on shorter term contracts is the most important next step to ensure the Gulf maintains its position as an LNG exporting region, according to 43% of the Survey participants. While almost 30% of the respondents said it was important for the Gulf states to create incentives to drive investment in new gas supply by removing all government subsidies that fix domestic natural gas prices at very low levels.
Opportunities abound for Middle Eastern producers to sharpen their competitive edge on the global LNG stage by 2018. But, aside from the aforementioned logistics and regulatory structure, there is a catch – they sit atop huge but undeveloped gas reserves. Figuring out the most economic and efficient route to leveraging the reserves will unlock a much-needed treasure chest that will propel the region’s export ambitions, especially amid intensifying competition from the US and Australia in the immediate term through to 2020.
Middle Eastern LNG exporters face a tougher check list moving forward with global consumers developing a growing preference for short-term contracts – long term contracts have historically been the bread and butter of LNG deals – means LNG sellers now need a large portfolio and sufficient flexibility to supply a growing number of countries, according to Shell’s LNG Outlook 2017.