Natural gas production is increasing in Arab countries, where some states, such as Qatar and Algeria, turned to be global providers of gas supplies, and gas production has increased significantly in both the UAE and Saudi Arabia, due to the world’s growing independence on natural gas as a source of clean energy. Despite all this, gas prices have fallen considerably during the past five years, where the prices of futures contracts fell from $11.5 (Dh42.20) in June 2008 to $3.3 at present, a whopping decline of 71 per cent.

This steep decline raised many questions about the fate of the huge investments pumped into the gas industry and the volume of its expected revenues, especially since the largest portion of these investments were approved during the time of high prices before the global financial crisis — when sources of funding were easily available.

To see the prospects for the natural gas industry, it is necessary to know the potential reasons behind this decline, while oil prices have increased considerably to be stable at above $100 per barrel over the past two years.

Even though the demand for gas remained high in global markets, the real reason lies in the high rise in the shale gas production in the United States — a fact that has turned the energy balance upside down and brought about dramatic changes — not only in the US energy market — but also in the global energy market, where shale gas output is expected to continue to increase in until 2020.

Impact on countries

Therefore, gas prices will remain at lower levels than those in 2008, however, the impact of low gas prices on the Gulf and Arab gas producing and exporting countries gas will be limited. As for producing countries, such as the UAE, Saudi Arabia, Kuwait and Bahrain, the local uses are extremely large, especially in electric power generation and the production of aluminium and petrochemicals, where gas is sold at subsidised prices.

But in exporting countries, such as Qatar, which is a major source of gas in the world, the impact of falling prices can be dealt with, as demonstrated in the past few years, thanks to increased oil production, high oil prices and huge cash surpluses there.

Looking to the future, indicators are in favour of natural gas produced from the fields at the expense of shale gas for several reasons, most notably the limited shale gas reserves, unlike normal reserves that are mainly available in Arab countries, Russia and Iran.

In addition, the shale gas production process leads to serious environmental consequences, as the production of this kind of gases is accompanied by the production of methane gas-which is harmful to environment and leads to heating equivalent to 25 times the heating process caused by carbon dioxide. This will fuel protests by environmentalists and significantly affect climate changes that caused serious damages to the world economy.

Consequently, the impact of the shale gas production will last for a few years, but the continued demand for gas in world markets would ease this impact on exporting countries. Gas prices have lately witnessed some improvement due its multiple uses as a key generator of heating and in the production of electric power, as well as to its domestic uses, apart from being a raw material for petrochemical industries, which are indispensable.

Reduce pollution

Gas is also used as a primary source of energy in many modern industries, noting that it is re-pumped to increase pressure in oil fields, to increase production. This besides the rapid spread of the use of gas in means of transportation in many countries to reduce pollution caused by coal and diesel uses.

In any case, the shale gas production cannot be a substitute for the gas production, which will remain an essential source of energy for many important future aspects, justifying major investments in countries with huge reserves, including Arab and GCC countries.

Hence, the GCC are now more of a need than ever for establishing an integrated natural gas network, which would increase the effectiveness of investments, cut costs and ensure supplies for the development of many projects of economic diversification and creation of job opportunities within the Gulf common market.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.