Gulf's natural gas ambitions are at a tipping point, with 30-50% production gains beckoning

Natural gas has been dubbed a ‘transition fuel’ for years, as its lower emission intensity can offer a set of benefits to a world transitioning to a net-zero world. Growing demand for hydrogen and other low-carbon fuels will create a new set of opportunities for gas producers and pipeline operators.

But how these play out will vary, depending also on the type of existing and future network.

The current gas network connecting GCC and Middle East markets can be seen as an archipelago with some limited connections between countries - for example, the EMG pipeline, the Arab Gas Pipeline, and Dolphin Energy Pipeline. According to Rystad Energy, gas production in the Middle East amounts to approximately 670 Bcm and expected to grow by 25 per cent by 2030.

The GCC alone accounts for roughly 60 per cent of Middle East production and is forecast to increase even faster, by 31 per cent by 2030. In this condition of limited connectivity, countries within the region optimize themselves mainly through upstream flexibility and therefore will continue to be self-sufficient. Gas pipelines can last for 50 years or more, which means that the companies developing a natural gas infrastructure to serve the growing demand in the region would need to consider an asset’s ‘second life’ to leverage new opportunities from the energy transition, especially in hydrogen or other alternative fuels.

Here are some of the steps that different players must consider.

Planning and analytical capabilities

Operators must develop capabilities for forecasting future consumption in different parts of their networks across strategy, regulatory management, asset management, finance, and customer departments to identify factors that will drive rapid changes in gas and hydrogen usage. ADNOC’s Panorama Digital Command Centre is a good example of the expansion of analytical capabilities in gas operations happening in the region.

Panorama is a fully integrated, real-time data visualization center that combines the data of 16 ADNOC operating companies, 120+ dashboards, and 100,000 data tags. Further upgrades will include AI-based support to decision-making, reshaping revenues and Opex models, and changing Capex management through the use of ‘digital twins’ and other asset simulation tools.

Different commercial models

Pipeline companies from the East Mediterranean region are being unbundled (at different levels of maturity), while companies in the Gulf are generally well integrated upstream. Therefore, companies in both regions should consider different commercial models, in which specific large customers partly underwrite volume risks and assess opportunities to proactively transition customers to new fuels, such as hydrogen and biomethane. By working alongside customer groups and policymakers, pipeline operators can help shape the optimal pathway to decarbonization in specific sectors.

By failing to do so, pipeline operators run the risk of being the incumbent in adapting to the rapid change in the market, or worse, being left with a sub-optimized asset.

Business and operating models

Operators must manage the transformation of their business and operating model for handling different types of gas across their networks (natural gas, biogas, hydrogen, CO2). They will need new asset management and business management tools to prioritize investments and optimize operations across multiple business units and operational capabilities and improve their productivity to prepare for declining natural gas volumes and nascent new gas volumes while avoiding avoid escalating unit costs.

Gas in the GCC and the East Mediterranean regions are poised to transform in the coming decade, driven by higher supply volumes, more infrastructure, and demand diversification. To boost domestic gas demand growth and diversify the economy in the most sustainable way, several countries will increase their gas production by more than 30-50 per cent over the next decade, including Qatar, Saudi Arabia, UAE, and Oman.

Kuwait could substantially increase their gas imports and potentially Saudi Arabia and Bahrain could become net gas importers by 2030, driven by diversification of industrial demand, oil-to-gas shift for power generation, and export of blue ammonia to Asia. In the meantime, the world is preparing for a net-zero future, with natural gas demand declining in the long term and an expected switch to other gases such as hydrogen and biogas.

Companies can act now to proactively drive the change on the demand side and restructure their business and operating model, to adapt to a transition from fossil fuels that can happen unexpectedly quickly.