Looming Peak Oil Demand Triggers Gulf Race for Natural Gas
The dash for gas will have ramifications for economic and energy models of the region’s petrostates for years to come as environmental pressures mount within the region and beyond.
Natural gas is the fastest-growing fossil fuel, and its share of the energy mix is set to grow in the coming decades as demand for oil and coal peaks. Most forecasts see natural gas as the only fossil fuel to increase its share of the global energy mix between now and 2050. As a cleaner-burning fossil fuel, natural gas is considered an essential alternative to coal, the most polluting of the hydrocarbon family. But as the energy transition away from fossil fuels has gained traction in recent years, the environmental impact of natural gas is being reassessed and debated in energy circles. While natural gas will have a role in the energy transition, some question whether climate goals can be achieved without decarbonizing natural gas and eliminating methane emissions into the atmosphere. Whether natural gas is a bridging fuel along the path to a cleaner energy future or a destination fuel is still a matter of much debate. The energy policy adopted by the European Union in its European Green Deal to 2050 envisages a reduction in the share of natural gas in power generation and a higher percentage of renewable energy in the mix as coal is phased out. The same goes for the United States, where demand for natural gas for power generation is forecast to plateau or decline. But natural gas is more of a regional story than oil, which is more global in nature.
Over the coming decades, the pattern of demand and pace of growth will be determined by regional market dynamics with peak demand in some regions and continued growth in others. The Asian market, led by China and India, will account for more than half of total growth in energy demand to 2040, according to International Energy Agency projections. The Middle East is the second fastest-growing demand region, where natural gas will displace oil in power generation and other sectors. In Africa, natural gas will play a key role in ensuring reliable energy access to the more than 600 million people who still lack access to electricity.
For most of the Gulf Arab states that rely heavily on crude oil exports for revenue, natural gas is increasingly being prioritized over oil and is seen as an engine of economic growth and diversification. But aside from Qatar, a global gas powerhouse, the other Gulf Arab states, which were late in monetizing their gas resources, are racing to secure natural gas supplies to meet soaring demand for power generation, desalination, and an expanding petrochemical industry. Even those countries in the region that have significant gas resources of their own have become importers. Bahrain, Kuwait, Oman, and the United Arab Emirates are all importing natural gas either via pipeline or as liquefied natural gas and, in some instances, both. Saudi Arabia plans to invest tens of billions of dollars to develop its unconventional gas resources while exploring opportunities to invest in overseas gas projects.
This dash for gas will have ramifications for economic and energy models of the region’s petrostates for years to come as environmental pressures mount within the region and beyond. Natural gas security would be enhanced if the Gulf Arab states put aside geopolitical differences and create a regional gas market and an integrated grid where transparency and cross-border trade can flourish.
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