ME gas producers facing oversupply challenge

Middle East gas producers are pressing ahead with expansion plans despite fears that the market could suffer an oversupply of up to 15 percent, a new report has said.

The Booz & Company study said that there was no doubt that the region's gas producers were feeling the effect of the global economic crisis.

Demand destruction in Asian markets, which are the traditional recipients of GCC gas, were challenging export schemes, it added.

But the report said many regional national oil companies (NOCs) including those in Iran, Qatar and the UAE, were still confident and were pressing ahead with their ambitious plans to increase gas output.

"Unlike developed countries, Middle Eastern markets are still hungry for gas, with demand expected to increase by at least 6 per cent per annum in the medium-term, the report added.

“The major driver for this growth is electricity production, which is continuing to grow at a high rate, in part due to relatively low and subsidized electricity tariffs,” Booz & Company partner George Sarraf said.

"While NOCs might be struggling to find new export markets for their gas or face challenges over pricing - domestic gas needs are significant. This situation is likely to keep projects on track for domestic supply, and also serve the region’s needs," he added.

The report said the economic downturn had the potential to "profoundly change" global gas markets.

Deeply negative forecasts for industrial output in developed countries will reduce worldwide demand for natural gas in 2009 and 2010 - the first time in history - while potentially setting back the market for up to 10 years, according to Booz & Company’s report called An Unprecedented Market. How the recession is changing global gas markets.

The report found that the market would be in a position of oversupply of between five and 15 percent this year and the next.

“This unprecedented worldwide drop in demand for natural gas may well set back global natural gas markets in terms of growth and profitability, by as much as 10 years,” added Sarraf.

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