The discovery of a massive gas field on the border of Dubai and Abu Dhabi could become a significant game-changer as the country’s relations with neighboring Qatar have cooled in recent years.
The Persian Gulf is, without doubt, the most prominent oil and gas production area in the world. After decades of intensive exploration and production, the region still amaze persistent explorers. Even well-explored countries such as the UAE still hold surprises. The Emirates are already one of the world’s largest producer and exporter of oil. In 2019 on average 2.9 million barrels per day were extracted, which generates approximately 30 percent of the country’s GDP.
Despite its impressive production capacity, the UAE remains strongly dependent on imported natural gas to meet domestic demand. A third of the country’s gas is provided by neighboring Qatar. The majority is exported through the Dolphin pipeline. The fraught political relations between Qatar and the UAE due the latter's support of the Saudi-led blockade create an awkward commercial relationship.
Therefore, the discovery of a massive gas field on the border of Dubai and Abu Dhabi could become a significant game-changer. Becoming self-sufficient improves the country’s energy security and potentially transforms the regional geopolitical environment.
At the start of this month, the UAE announced the discovery of the largest single gas field since 2005. According to the authorities, the Jebel Ali field contains 80 trillion standard cubic feet of gas. It has the potential of making the Emirates self-sufficient. However, the gas field’s development could take years during which the UAE is dependent on imported natural gas (both piped and LNG).
Even though they’re on track to achieving self-sufficiency somewhere in the middle of the 2020s, the UAE is contractually obliged to keep buying natural gas from neighbor Qatar. The Emirates signed an export deal with the Qataris before tension rose due to the Saudi-led blockade. However, that could become an advantage if the UAE decides to enter the global LNG market.
Also on rt.com Location, location, location: Why Russian LNG can beat competition from US & AustraliaAccording to Samer Mosis, a senior analyst with S&P Global Platts Analytics, “while the discovery has the potential to bring the UAE one step closer to gas self-sufficiency, significant unknowns remain around development costs and volumes.” This could mean that self-sufficiency is more difficult and expensive to achieve than currently anticipated.
Although Qatar has remained a reliable exporter despite the blockade, energy dependency is not sustainable and desired even among friendly nations. Therefore, the Emirates have been pursuing a diversification policy. The goal is to develop alternative sources of energy production such as renewables and nuclear.
According to ADNOC CEO Sultan al-Jaber, the UAE are on track to double the number of renewable energy projects until 2030. During the previous 10 years, the renewable energy portfolio already grew by more than 400 percent.
Also, the Emirates have ordered the construction of the Arab world’s first nuclear power plant built by Korea Electric Power Corporation (KEPCO). The Barakah plant is a massive undertaking which should generate 5.6 GW when it’s completed. The facility was originally due to open in 2017, but delays have extended its opening and therefore also the UAE’s dependence on gas imports.
Assuming that the Emirates’ energy policy bears fruit and the intended goals are reached by the end of this decade, the massive gas field could be redundant for domestic purposes. When that happens, the gas could be employed for other purposes such as export.
Currently, the majority of the UAE’s income is derived from oil exports. Electrification of vehicles is a significant threat to oil-exporting countries. The UAE acknowledges the threat imposed by the changing attitudes towards oil production which has led to an ambitious economic diversification plan.
Natural gas could become an important pillar of growth in the short and medium long term. While the consumption of oil is slated to peak somewhere around 2030, natural gas's share will remain growing. Therefore, a domestic LNG industry could become an important part of the UAE’s energy portfolio. Regardless of the possible financial windfall, the Emirates need to double down on their diversification policy to improve energy security and reduce dependence.
This article was originally published on Oilprice.com