In a significant development formalised last week, Oman signed a 25-year agreement valued at $60 billion with Iran to supply it with Iranian gas through a pipeline. The agreement brought to memory the hesitancy of GCC countries to set up a Gulf-wide natural gas network similar to the power grid linkage.
Regional co-operation is vital and contributes to an exchange of mutually beneficial interests. However, in international relations, there is never an absolute economic co-operation removed from political considerations and pressures. Hence, this requires diversity in supplying the tools of development.
Currently, demand for natural gas among GCC countries is on the rise due to the increased power production and the constant expansion of the petrochemical industry and oil production. This has led some of the GCC economies to search alternate sources, including production of the very high cost and environment-polluting shale gas.
This is happening at a time when the GCC has the option to meet its natural gas needs through setting up a comprehensive Gulf-wide pipeline network. Such a move can only enhance prospects for both exporting and importing countries within the network. Exporting nations will benefit from the lower cost of transportation which constitutes a large proportion of pricing the gas. It can easily be taken care of by extending pipes over adjacent countries and within a limited geographical space.
Importing markets will gain from the cheaper rates and guaranteed supplies that are not ruled by external political pressures because GCC countries are allies. They have common interests and excellent historical relations. Gas supplies will also answer energy needs to develop non-oil sectors.
A common denominator
The joint Gulf market has become a common denominator binding the economies. This will be reflected in all if a single Gulf market is touched. This means that the comprehensiveness of these markets is real and its favourable reverberations can be found across the GCC.
There may be technical requirements that exporting nations need to be concerned about, particularly in regard to prices. However, this can be resolved easily through long term agreements which limit the quantity and price, similar to what is there in the Oman-Iran agreement. This is possible as selling and purchasing will be done through a dedicated company which deals commercially on the basis of what is applied in international energy markets.
In general, GCC countries as a whole do not suffer from a decline in supplies or reserves. Qatar for instance is considered one of the biggest natural gas suppliers besides Russia and Iran. The issue rests in the fast growing needs in the rest of GCC countries, where some of them are able to develop their resources and achieve self-sufficiency.
But that will be expensive in comparison to getting supplies through a Gulf-wide network if it is established, which means that the issue has important commercial and economic dimensions.
Hence, such a network - currently excluded from the GCC agenda — in fact carries strategic dimensions related to the energy security of GCC countries and the regional alliances that may result from it. These alliances manifest the interests of the parties and will no doubt determine many a balance in international relations.
On the basis of this, setting up the Gulf gas network needs to be on the agenda of the coming GCC summit in Kuwait by year end. This will result in a quantum leap in the Gulf’s energy industry and for the bloc as a whole.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.
