Energy Outlook Q3 2017

Each year is related to a Chinese zodiac animal according to the 12-year cycle – 2017 is the Year of the Rooster. The Rooster in Chinese culture is almost the epitome of fidelity and punctuality – for ancestors who had no alarm clocks, the crowing was significant, as it could awaken people to get up and start to work. Another symbolic meaning the chicken carries is exorcising evil spirits.

We could perhaps do with a bit of those powers given the level of “fire & fury” that has been rocking the world since the alarms started ringing to get us off the beaches and back into the office with the end of summer.
In the last few weeks alone we have had the threat of Nuclear War surface in Asia, alongside once in a lifetime earthquakes and hurricanes the size of France ripping through the Americas and drowning the 4th largest city in the US. Quietly in the background, grabbing few headlines, more than a thousand people were killed by flooding and landslides in northern India, Nepal and Bangladesh, which itself is trying to absorb hundreds of thousands of refugees fleeing genocide in Myanmar.
And yet few bells are ringing.
The stock markets globally still want to dance to the music of double-digit leaps to new records, and while increasingly more voices are warning that the band resembles the orchestra on the Titanic, most Central Banks refuse to take away the punch bowl of free money and just keep on printing.
In a parallel corridor, crude oil sits like a bored child in the back seat of a $50 car on the way home from the seaside oblivious to the biblical images blasting across the iPhone with Armageddon geopolitical subtitles wandering across the screen as the North Korean hydrogen bomb blast test sends waves around the world 3 times.
People born in the Year of the Rooster according to the Chinese zodiac, have many excellent characteristics, such as being honest, bright, communicative and ambitious. Most of them they say, are born pretty or handsome and have a preference for dressing up. In daily life, it is believed they seldom rely on others, they might be enthusiastic about something quickly, but soon be impassive.
In either case, it strikes me that we need the proverbial Rooster to crow a lot louder, or for hearing aids to be distributed to those in need. There is help around the corner as 2018 is the year of the Earth Dog and its characteristic word is ACTION!.

The historic economic reforms and transformation in GCC countries currently underway could be interpreted erroneously and lead to unintended messages, including the idea that our countries are moving towards a major oil renunciation.

We are fully aware that oil will remain central to our economies in the Gulf, in our lives as individuals and in the lives of people throughout the world. In the same vein, diligence to maintaining our position in the global oil market will not prevent us from developing renewable energy sources. 

Media must deal with four aspects of the petroleum industry with the professionalism they deserve:

1. The negative image of oil producing countries, including the GCC, and the claim that we exert pressure on consumers in the oil market. Some even claim that GCC countries, and their cooperation through OPEC, blackmail consumers to achieve financial gains for our countries. They ignore the huge concessions and heavy burdens borne by the GCC countries to maintain the stability of the oil market and the balance between producers and consumers’ interests. The most recent example is illustrated by the sacrifices made by these countries in the past few months in cooperation with non-OPEC countries to restore stability to the oil market. Over the years, it has been proven that significant volatility in the markets hurts all interests. 

2. Inaccurate and scientifically unsubstantiated content; first about oil reaching its peak and then about expectations to attain peak demand. Studies have proven that such statements are false and have been launched to promote other sources of energy and some countries’ economic interests. 
Moreover, independent scientific studies affirmed that the world’s oil reserves, which were proven to be scientifically viable and economically feasible, are sufficient for decades to come despite the increasing demand. This is especially the case if the reserves are handled in a responsible manner and benefit from the application of modern and innovative technologies. 

3. Countering the view that the petroleum industry is totally responsible for environmental pollution and climate change. They ignore major consumer countries that do not pay any real attention to the environment and overlook the continuous efforts of the GCC countries to contribute to protecting the environment and fulfilling their obligations to relevant international agreements, such as Gulf governments’ support of the Paris Agreement. In Saudi Arabia for example, we recently launched the Initiative of Custodian of Two Holy Mosques for Renewable Energy to generate 10 gigawatts of renewable energy within seven years. 

4. Reports regarding the size of revenues and the financial value generated by the oil consuming countries. Contrary to the misleading claims of media reports that producing countries are the only winners in the oil industry, we find that 40% – 80% of the value of a litre of fuel in some consuming countries is allocated as taxes received by local governments. 
The aforementioned issues and many others confirm that GCC countries need a petroleum media to educate the public at home and abroad about the various areas of industry and the fundamental role it plays in the global economy and in everyday life.

What are the secrets to building a successful petroleum media ecosystem? The answer consists of four key pillars:

1. The most important pillar is the combination of all stakeholders’ efforts to create effective and integrated partnerships that adopt the development of skilled and promising petroleum journalists. 

2. Discovering talented individuals  who show a real passion to work in the petroleum media field, especially those at university. They must be supported with scientific knowledge, research and survey skills. They must also be supported with knowledge of basic information about the petroleum industry, related sciences and key aspects of the local and global economy. 

3. Developing effective and sustainable partnerships amongst media institutions. This includes specialized and distinguished local, regional and international media and research institutions, as well as ties with major oil companies. The aim is to develop, adopt and support academic and professional training and developmental tracks. 

4. Media professionals must be aware that they play the most effective role in developing their career and promoting their skills. They must not rely on others, but dedicate themselves to the profession. They must build their professional relations locally and internationally to build a solid foundation of ethics. 

We in Saudi Arabia, and especially in the Ministry of Energy, stand ready to cooperate and support any comprehensive and sustainable initiative to achieve these improvements. I also propose that the name of this Forum, the GCC Petroleum Media Forum, is  changed for 2019 to include all industries across the energy spectrum.
The petroleum industries in the GCC have a fascinating history and these stories must be shared with our people and highlighted to the whole world. Let the Forum – be a new starting point to build the energy media that we want and deserve.
 

We must harness today’s positive momentum between governments, industry and media to carve out a new standard of professionalism and trust across the GCC.

Gatherings like the GCC Petroleum Media Forum in April this year are highly important to us, as leaders and decision-makers, to improve the true portrayal of the petroleum industry in the local and international media. Providing an accurate viewfinder into the GCC’s oil and gas sector is also key to raising awareness of the importance of our natural resources.  
We want to extend our contribution towards building relationships between staff working in the public and private sectors, media and academia by using innovative communication channels that lead to sustained and positive change. The appetite for such improvements is clear. The Forum attracted officials, media personnel, students and academics from across the Gulf to exchange knowledge, share experiences and strengthen strategic communications.
We are privileged to have a mix of traditional and modern media facilities and the presence of established and seasoned media personalities in the region, which are all gaining more prominence. This is in part thanks to technological expansions. This includes distinguished social media influencers; the GCC has one of the highest social media penetration rates worldwide.
We will not turn down a professional journalist who wants an interview, or a meeting. But there are things that we will not be able to talk about. Some individuals in the media must stop continually pushing for such information as it does not help build trust. We can sometimes be asked the same question five times in one day by the same individual – a question that we have already said we cannot yet answer. 
We want to engage in longer term relationships with the media that are based on the right information. But everyone must remember that such information comes when the time is right. The credibility of our countries and the credibility of the organizations we represent – OPEC and the GCC, for example – are more important than individual ministers. Oil ministers will change, but the credibility of the organization and country will remain.  
We need a cooperative attitude from the media in terms of how they deal with us and how they get the right information to the market. For example, there has been a fundamental change in the transparency and sharing of data, such as OPEC’s data, which is now publicly available. But I worry about how data can be selected to create a story that does not reflect reality.

Sometimes we read the headlines and think there has been a disaster, when in fact the oil price has merely dropped by twenty cents. 

Media professionals have easy access to a tremendous wealth of information thanks to technological expansions, which means that stronger analytical skills are required. Journalists must be able to analyze information before it becomes news. For example, I was asked by media personnel recently if Saudi Arabia is exporting oil from the UAE’s Port of Fujairah. In response, I asked them if Saudi Arabia has a pipeline to Fujairah? No. Did we hear this information from state-owned Saudi Aramco? No. Have we heard it from the UAE’s state-owned ADNOC? No. The media must go and get the information from the source – this is the first step to being a professional. Always contact the company, as the ‘news’ may just be an internal study that will have no impact on the market. Analysis is the business of the analyst. We as ministers are also market professionals and we will tell you what we think; we tend to be right more often than not in recent history.

A New Rulebook
Many steps can be taken to improve the current dynamic. Greater emphasis should be placed on accurate reporting and publishing and information must be harvested from facts and not based on rumors and speculation. There must also be more focus on preparing qualified official spokespersons within the oil and gas sectors and coordination and communication should be strengthened with the new generation of young influencers using social media. We also welcome the idea of integrating a prize for young and upcoming journalists at the next Forum to encourage the next generation into energy reporting.
Self-responsibility and internal monitoring must be established amongst those handling and publishing data and information. Access to data, understanding statistics and language skills are also challenges that need to be addressed. The same goes for assimilating specialized information and data analysis.
The next Forum should encompass all energy forms, from petroleum to renewables. These are all ways of providing energy to humanity and the oil and gas industry must work with other elements in the energy market to deliver a balanced equation. Each country chooses the structure that best fits their requirements to have a balanced energy mix.
The Forum has enabled us to start building a roadmap to improving that relationship and we will work with the media to deliver this. Building trust between us and our partners in the media is time well spent. We must keep discussing strategies and mechanisms that can lead to clear and accurate media messages. This is essential to enhancing the minds of our future generations. Thinking about energy is thinking about the future. We cannot afford to be idle.

A New Status Quo?

Information is knowledge and knowledge is power. We have more information at our fingertips today than ever before – it must be used wisely. Since the world’s first newspaper was created in the early 1600s, the nature of reporting has changed almost beyond recognition. Today’s highly competitive 24/7 cycle of petroleum media is fed by an ever-growing array of titles and news mediums. The deadlines are tight – news is reported in minutes and hours, not days – and consumers’ demands are higher than ever before. But this cannot jeopardize accuracy, which is the first and most important rule of journalism. The same ethos must also apply to those in industry and government, who are responsible for sharing information that must be timely with the correct data and messages. The entire energy ecosystem must adjust to keep pace with the unprecedented change in the energy markets, including the rapid growth of social media as a tool of communication. Decision makers in government, industry and media need accurate information in order for GCC countries to profitably and efficiently meet the 49% growth in the Middle East’s energy consumption by 2035, as forecast by BP’s Energy Outlook. Correct information leads to sound decision making – it is a simple equation that the entire ecosystem must keep at the forefront of their minds. Every facet involved in petroleum media – government, industry and media – must re-focus their efforts to bolster transparency, contact building and fact-checking. Updating the guidelines for the petroleum media in the GCC requires a collaborative effort, which is free from blame and finger-pointing. The GCC is entering a new chapter that has the potential to create a world-leading petroleum media - but everyone must be on board. Now is the time for unity. 

Among many unknowns, we can expect three domains of certainty to impact energy markets through to 2040. 

1. The global population will dramatically increase (albeit at a slower pace), particularly in Africa where energy consumption per capita is currently the lowest. 
2. Fossil fuel resources will remain plentiful, contrary to what some were fearing a few years ago; this is due to the shale revolution and lower demand growth trimming as a consequence of energy efficiency gains and renewables policies. 
3. The climate is changing more strongly and faster than anticipated. Combatting GHG emissions is not only a must, but a matter of urgency: the sooner we curb GHG emissions, the better the result. That is why I assume that the 2015 Paris Agreement will be fully implemented – failing to achieve this would draw the world into unchartered territory.

Now what about the uncertainties? The main one is electricity mass storage and whether it will become commercially available. If the answer is yes, we can predict that electricity will become the dominant energy consumed, including in domains where it is today poorly developed, such as space heating and transport. The reason is that you can always produce electricity without emitting CO2. As both power demand and supply will be increasingly variable, storage will be the solution to avoid expensive investments in production and transport capacities.
If scientists and engineers however fail to provide safe, large and cost-effective storage products, space heating and transportation will remain the domain of choice for fossil fuels. Does that mean that we should abandon any hope to limit global warming to less than 2°C? Not necessarily, but the tools become more diverse and more difficult to implement.

Examples of these tools include hybrid vehicles that can consume less than 2 litres per 100 km and hybrid buildings using electricity for heating when it is available and cheap and natural gas when it is not, for example. CCS will also be key for abating industrial emissions from steel, cement, fertilizers and refining, etc.

The demographic surge in Africa renders the prospect of North American style energy consumption simply unviable going forward.

We cannot avoid the deep, necessary changes in our behaviors that are now required; these will certainly be different but not necessarily make us less happy.
We cannot continue to ignore the costs related to our policy choices and moreover to let the end-user consumer ignore it; we need to implement the least-cost options first. To make this clear, we should scrap all energy subsidies and give a price to CO2 emissions, which triggers appropriate investments in low carbon energy production, energy storage and energy efficiency. The urgency today is addressing global warming and policy tools for that purpose should be technology neutral.

One can become romantic about the rebuilding of the ancient Silk Routes, but the trade links being re-established in the 21st Century have nothing to do with nostalgia. Rather, they are all about business, especially when it comes to the arteries of commerce being built from the Middle East to Asia.

The size of Saudi Arabia’s King Salman entourage on his recent tour of Asia attracted most of the attention, but there are big business and political priorities that drove this month-long journey.  They can be broken down into three categories: energy, diversification and geo-politics. But the overarching theme was: Asia remains a big deal to the Kingdom.
“As Saudi looks to the future, Asia of course is front and center.  It is two-thirds of the world’s population, half of its economy and those shares will only grow. Asia is Saudi Arabia’s commercial future,” said Ben Simpfendorfer, Founder and CEO of Silk Road Associates.  

As the world’s number one exporter of oil, energy took top billing in this Saudi Arabian version of shuttle diplomacy. 

On the first leg of the King’s visit to Malaysia and Indonesia, Saudi Arabia signed deals worth $13 billion to expand downstream operations.  State oil giant Saudi Aramco plans to double its refining capacity to 10 million barrels a day by 2025, according to Riyadh- based Gulf Research Center. These transactions could help bolster the initial public offering (IPO) plans for Aramco next year.
But basic crude still matters and fresh demand is coming from this part of the world.  Asia represents nearly a third of daily global demand at 31.4 million barrels last year. It is a fact not overlooked by the major producers, with the Kingdom vying against the other Gulf states, plus Iran and Russia, for their slice of the Asian market.  
The name of the game in oil is new demand growth and right now Asia represents the industry’s pot of gold.  According to FACTS Global Energy, of the estimated daily demand increase of 1.4 million barrels a day, one million is coming from Asia. 
“Saudi Arabia’s largest market is no longer China but Japan now. This is why the King is going to Japan... it is very important for them that they keep the Japanese market warm,” said Fereidun Fesharaki,  Founder and Chairman of FACTS Global Energy.
The Kingdom is also considering whether to list part of the Aramco IPO in Tokyo, which is another reason to carefully court Japan’s investment community.
After Japan, came the visit to Beijing, where Aramco has its Asian headquarters. Saudi Arabia and China have already set up refineries in each other’s territories to cement their energy co-dependence.  Whilst this latest trip did not produce concrete deals, there is clearly a willingness to do more as outlined in $65 billion worth of memorandums of understanding (MOU) between Riyadh and Beijing.
The UAE has a well-defined Silk Road strategy to bring together the policy interests of the Ministries of Foreign Affairs and Energy and UAE Inc. if you will.  It started in China and is making its way to India.  At the start of 2016, the Crown Prince of Abu Dhabi, Sheikh Mohammed bin Zayed Al Nahyan, convened a high-profile tour of India to expand trade ties already worth $75 billion a year. Energy is a key pillar of that strategy with current demand on Abu Dhabi’s crude running above 300,000 barrels a day.
“That can go much higher and there are many, many areas to explore in the oil sector, among them of course is strategic reserves, greater sales of UAE oil to India and downstream,” according to Anwar Gargash, the Minister of State for UAE Foreign Affairs.
China and India’s combined market share, according to the Dubai Mercantile Exchange, has tripled to 16% of daily demand since 1990 and is expected to double between now and 2040.
But there is plenty to consider beyond energy, especially in Far East Asia.  Saudi Arabia is eager to have China assist in its drive to diversify what is the Middle East and North Africa’s largest economy, a top priority of King Salman’s young but powerful son, Deputy Crown Prince Mohammad bin Salman.
The Saudi Vision 2030 aims to reduce what he said is the country’s addiction to crude, boost the role of the private sector and make the Kingdom a competitive hub for manufacturing and services. 
“When you have to start thinking of your non-oil future, basic manufactured goods or service offerings, then all of a sudden geography matters,” said Simpfendorfer. 
King Salman’s tilt to Asia dovetails nicely with China President Xi Jinping’s “One Belt, One Road” plan.  The initiative is designed to connect China with over 60 countries from Asia to the Middle East and Europe, with the rebuilding of infrastructure to facilitate trade. 
China, with its one-party, communist party structure, makes it common practice to put in long-term strategic plans. This approach can benefit the Kingdom, which lacked such thinking beyond oil until the 2030 plan was launched last year.
“You have somebody in China who has technology, money, people and the market and somebody in Saudi Arabia who wants to look at future options – the Chinese provide the options,” said Fesharaki.
Those options, strategists explained, take on added importance today with US President Donald Trump in office. He has not defined Washington’s policy in the Middle East with all its complexities, especially the long-standing rivalry between Riyadh and Tehran.     
“Saudi rediscovered Asia over the last ten years, yet momentum was fading.  With a less certain political landscape, the re-pivot to Asia has been reinvigorated,” said Simpfendorfer.
 

Plugging Black Holes of Inefficiency
 

In an industry beholden to high operational and maintenance bills, power operators understandably reel from conversations about integrating efficiency into existing and new infrastructure. But this short-termist approach at a time when the Gulf’s demand forecasts are on an upward trajectory risks two results that we unanimously want to avoid – costly mistakes and hampered supply.

 
The GCC’s power capacity needs to expand at an average annual pace of up to 8% between 2016 and 2020 to meet demand, according to Saudi Arabia-based Apicorp. Accordingly, Saudi Arabia is expected to invest $133 billion in electricity projects over the coming decade. The Kingdom’s peak electricity is forecast to hit 90,000 megawatts (MW) in 2022, from the installed capacity rates of around 70,000 MW in the first quarter of 2016 – nearly a 30% increase. Qatar will need to spend $9 billion between 2016 to 2020 to add another 5,200 MW of capacity, while Kuwait is eyeing 9,000 MW in additional new capacity by 2020 from current levels of around 14,000 MW. 
These big-ticket investments will pay off in the long-term if the industry irons out the wrinkles of inefficiency now. Doing it sooner rather than later is better and cheaper than backtracking to fix bottlenecks in the 2020s and beyond. Establishing an integrated one-stop shop of solutions to support power plants and distribution networks in the Middle East is gold dust in today’s competitive global environment. But quantity is not everything; it is paramount that operators strive to be increasingly efficient. 
Updating infrastructure with 24/7 monitoring of plant equipment and maintenance recommendations will curb unplanned downtime – a threat that worries every operator. Digital solutions form the modern-day core of an integrated approach, as predictive analytics, cloud-based computing and automatic sensors can pinpoint and resolve issues before they occur. 

There is huge scope to unlock a treasure chest of data-driven efficiencies; just 2% of data in the power markets is currently analysed and applied to improve operations. Yet there are more than 3,100 sensors and actuators generating data in a single gas turbine power plant. This illustrates the huge data potential that can be leveraged to sharpen efficiency. Industry will only feel the full benefit of better data management if most stakeholders are involved. Patchwork applications delivers patchwork results.
GCC operators need to harness this information and transform their knowledge into power, as per their bids to transition from hydrocarbon-centric to knowledge-based economies over the coming two decades. Digital efficiencies can contribute to saving GE’s customers up to $1 billion in operational and maintenance costs over the coming decade. These savings will only become more valuable as power demand soars.  

Establishing new benchmarks of operational and environmental efficiency is essential to ensure operations are continually strengthened in the Gulf and beyond. In partnership with EDF, GE’s combined-cycle power plant in Bouchain, France set a World Record due to its staggeringly high efficiency rate of 62.22%. The plant can reach full power in less than 30 minutes and creates 55% less CO2 emissions than a standard thermal power plant, which gives operators the ability to respond almost immediately to fluctuations in power demand while protecting the environment.  
GE applied its Digital Power Plant to the Bouchain plant, which includes using real-time data to improve operations and predictive insights for reliability. With a capacity of 605 MW, the plant can generate the equivalent power needed to supply 680,000 homes and the tip of the propeller blade clocks a speed of 1,931 kph – 1.5 times the speed of sound.
One size cannot fit all; the industry is too large and complex. Instead, we must focus on a holistic mix of solutions – power generation technology, digital transformation and enhanced maintenance – that enables us to set new world records at a much faster rate. This is how we accelerate the evolution of our industry and guarantee that manageable expenditures, energy security and environmental goals are met. With no pause button for the Gulf’s blooming appetite, power investors and operators must track the yellow brick road laid by efficiency to arrive at a destination of robust balance sheets and seamless output.

Understanding the Dynamics of Tomorrow Better than Yesterday?

• H.E. Dr. Ibrahim, Economic Advisor to H.H. the Emir of Qatar
• Noé Van Hulst, Ambassador of the Netherlands to the OECD & Chairman, IEA Governing Board
• Walid Khadduri, Former Editor-in-Chief, Middle East Economic Survey (MEES)
• Marwan Masri, Former President & CEO, Canadian Energy Research Institute (CERI)
• Dr. Mark H. Weichold, Halliburton Engineering Global Programs Professor and Associate Dean for Academic Affairs, Texas A&M University, USA 
• Moderator: John Defterios, Emerging Markets Editor/Anchor, CNNMoney

John Defterios: We are at a key point when it comes to the transition that is happening in the energy sector. Technology is developing so quickly, both in traditional markets and new hydrocarbon markets like the US shale and renewables. What are your thoughts on the pace of this transition? 

Dr. Ibrahim: Fossil fuels will remain the dominant energy source for the foreseeable future – they represented 86% of the energy mix in 1973 and now they are at about 81%. Most of the decline has not come from the introduction of low carbon energy resources, but rather from nuclear. From that angle, I would not say that there has been a revolutionary transition, but it is coming and we hope it comes soon. 

John Defterios: Marwan –  you have worked in the renewables sector in California. Are the billions of dollars going into the renewables sector a lead indicator that we’re going to get a much more rapid change in the overall energy mix? 

Marwan Masri: Energy transitions are not new. We’ve done wood and then coal, oil and gas. And now renewables are beginning to come to the market. Past transitions took a century or more to move from one fuel to another. The pace of change is getting quicker now, but the missing element is the role of policy. Transition does not happen on its own; it is driven and influenced by government policy and by incentives that are administered and used effectively. It has taken a 40-year effort to bring solar into its relatively competitive position today with other fuels. Although the market is still growing, it’s a very small fraction of global renewable energy.  In 30 years, we will still have fossil fuels as a dominant energy source. New fuels coming in still have issues that need a lot of work before they can become mainstream and replace fossil fuel energy. 

John Defterios: What maintains the dominant role of fossil fuels? Is it heavy industry and transportation?

Noé Van Hulst: Renewables have become mainstream; something really has changed. If you had asked me ten years ago, I would have been much more skeptical. But now, I see it happening – both in government policy, in industry and in cities.  Everyone wants a cleaner future with less pollution. It’s what the young people want and they are right to ask for it. Is it going to be as quick and fast as some people would like? Probably not. It’s going to take time, because it’s a huge challenge. It’s good that there are targets, but there will still be bumps in the road. You will have the problem of heavy trucks, of petrochemicals, for example. A lot of the western world has been built around the manufacturing industry and nobody has yet shown how we can run a chemicals industry and a steel industry with zero emissions. That’s what we need to start thinking about. A lot of R&D is still needed to make that happen and to crack the nuts that haven’t yet been cracked. And let’s not forget about energy efficiency. The demand side is incredibly important and we need to get a much better handle on that in this region. 

John Defterios: We have seen demand growth hold strongly between 1.1 million and 1.4 million barrels a day in the last two years or so. Does that equation start to change when efficiency kicks in?

Walid Khadduri: What concerns me is the fact that we’re in an era now where, because of shale oil, there is a cap on prices. How are the oil producing countries in the region going to deal with that? Will we go over $50/bl or $60/bl? It doesn’t look like it for now.  Global demand overall is rising because of ever-increasing populations and rising standards of living, but there is overall stability in demand. Again, the question for us here in the Middle East is can we really manage and diversify our economies to live with a lower oil price for the foreseeable future?

Dr. Ibrahim: Gulf economies should detach their energy policy from their other economic development requirements – the two should almost develop separately. 

Dr. Mark H. Weichold: The beauty of hydrocarbons is that the production and distribution of the energy is very well known and almost routine. The other aspect is that the storage of the energy is almost natural – you’ve got a tank that contains oil and a cylinder that contains compressed gas. It’s relatively straightforward. The equivalent for short electrical energy is not at that stage. I think the critical part of making renewable energy successful, be it wind, solar or others, is a mechanism to store that energy. We can produce and distribute electricity, but to store it in an efficient way is more complex. 
 
John Defterios: Could we have a breakthrough on electric power storage in the next five years? Technology and disruptions are happening much faster now than they did 15 years ago. 

Dr. Mark H. Weichold: We could. There are some remarkable things happening now in materials research and nanotechnologies hold a lot of promise. We’re gaining a lot of knowledge about the various types of non-traditional batteries and I think we’re on the verge of something, perhaps within the next five years. 
Marwan Masri: Work on storage has been going on for a very long time. The previous Secretary of Energy in the US, Ernest Moniz, set energy storage as a priority when he came to office and the US is still not there. It is technically a very difficult thing to do, but also the resources and policy needed to bring it into market are just not there. But looking out ten years to 2030, it would be more likely that storage will be here. Everybody knows what the payoff will be once it is. It will make renewables mainstream and perhaps even speed up the transition to that source of fuel.

Noé Van Hulst: A lot of countries are pooling their resources and doubling their R&D efforts to find innovative storage solutions for renewable energy. Nobody really knows when it’s going to happen, but we are trying very hard to push that frontier.   

John Defterios: If we look at one of the GI Industry Survey questions: “Disruptive technology like big data, automation and artificial intelligence are said to accelerate the transformation of the oil industry over the next decade and will therefore make it difficult for the Gulf NOCs to maintain current employment levels. Can NOCs maintain their dual responsibly of revenue generation and the social contract of national employment?”  
In the context of this question, are Saudi Arabia’s 2030 Vision employment targets realistic, for example? They have suggested 1.5 million jobs to be created by 2020. Saudi Arabia currently generates anywhere from 15,000 to 25,000 new jobs a year. So, that is well off that 1.5 million mark. 

Dr. Ibrahim: We started economic diversification and transformation way before the oil price build-ups. We started it with our Qatar National Vision 2008 – earlier than Saudi Arabia. There was a lot of ambition; we had the National Development Strategy, which addressed economics, environment, social problems and employment. The objectives were there, but we did not start right away. We need a comprehensive and transparent policy. The people should know what we are doing – we should say this is what we have and this is what we can do and you should be with us. Again, it must be a transition. It must be a target, but the speed should be steady. 

Marwan Masri: It is also important that employment targets are tied to a set of policy tools designed to get to a certain point. Some industries are labor intensive, while others like the hydrocarbons industry are more capital intensive. Whether the target is reached or not depends on whether there are actions taken to diversify the economy and create other industries that are more labor-intensive than hydrocarbons. 

John Defterios: A second GI Industry Survey question: “Which of the following macroeconomic trends could have the greatest impact directly or indirectly on the Middle East’s oil industry through to 2020?” Is it Gulf states’ continuing budget deficits, China’s slowing GDP growth, rising interest rates in the Organization for Economic Co-operation and Development (OECD), Trump’s America First policies or India’s emergence as the world’s third largest energy consumer? 

Walid Khadduri: My main concern is the fact that the region is not stable. We already have problems in Iraq, Syria and Libya – countries that are being devastated. And they have emigration in the millions that we must support somehow. This could really devastate any possibility of reform in the way that the military complexes are taking place in the region, and would also be a financial and political burden for the other countries in the region. This is something we really should think about. Algeria, Sudan and Yemen are also weak. It is going to take many, many years to rebuild these countries – not a year or two.

What Does It Reveal About the Outlook for the Middle East Through to 2020?

Interview with H.E. Fouad Siniora, Former Prime Minister of Lebanon & Head of Parliament Majority Bloc
Moderator: Sean Evers, Managing Partner, Gulf Intelligence

Moderator: US President Trump has so far taken on a more realist policy posture towards this region than perhaps expected. Is that a positive development? Would that give him a tick from your point of view? 

H.E. Fouad Siniora: It is positive. It is not possible for a President of the US, with all the responsibilities of a super power, to continue dealing with matters from the point of view of a businessman or as someone who is not aware of the various factors required to create real policy. The President still must feel his own way to understand what faults were made by his predecessors, while realizing that ultimately there has been a major change in the region. The matter also must be looked at from the perspective of time and to find permanent solutions instead of simply putting out fires here and there. Otherwise, it will end up by increasing problems in the region. The Middle East suffers from a lack of real reform, which should have been done over a long period of time. Proportionally, the region has a very large young population, which is looking for real solutions to address real problems, such as employment. If these matters are not dealt with, there will be more anger and more marginalization of young people. And instead of expressing their views in a moderate and constructive manner, they could express them in a more negative and violent way. 

Moderator: The former administration of President Obama was generally criticized for being ‘non-engaged’. As part of your ‘message in a bottle’ to President Trump, would you suggest that America engages in a much more significant way? And what would be the consequence if they don’t?  

H.E. Fouad Siniora: I would recommend that. The world is becoming a small village and it is in the interests of countries like the US to identify what is in their long-term interest. This includes finding real solutions to hotspots, rather than leaving them to brew and to spread and infect other areas. If we take Europe as an example, it is suffering from the continuous influx of refugees crossing the Mediterranean. Managing this problem by closing borders is not the solution. It is impossible to do this anymore. One must find permanent solutions rather than short-term fixes. 

Moderator: Do you believe that to engage in the region and find permanent solutions, common narratives must be found? There do seem to be a lot of contradictory narratives in different countries. How does an American administration tackle what has become a more complicated geography than it was a decade ago? Should and could it be communicating with moderate Arab voices for one continuous narrative across many countries, for example? 

H.E. Fouad Siniora: In this region, I consider the Arab-Israeli conflict to be the ‘mother’ of most issues. This has been dwarfed by what’s happening in Syria, a country of 25 million people where over 500,000 people have died and a minimum of 1.5 million have been injured and incapacitated over the last six years. We now have 50% of the population of Syria as refugees within or outside of their country.  There is another statistic that’s very frightening – the Arab world encompasses about 5% of the world’s population, but we constitute more than 55% of global refugees. That is the extent of the problems that we are facing and we really need to address them. The Syrian situation is also affecting neighbouring countries and this is a problem that must be handled. The other area of concern is the situation between the Arab world and Iran. This is increasingly affecting the region because of the interventionist policies being adopted by the Iranian regime, without really respecting the sovereignty of other states. This leads to further instability. 
Moderator: In terms of those two issues you mentioned, Israeli-Arab and Arab-Iranian relations, are they on par over the coming decade? If Trump had only one to choose for alignment, which of those two would you recommend?

H.E. Fouad Siniora: You cannot pick one issue and think that you can keep the other one unchanged. You’ve got to address these issues based on real assessments of what must be done. It is not possible to continue having a situation like the Arab-Israeli conflict, where Israel is increasing the number of settlements and clearly adopting an apartheid policy, without addressing the situation. At the same time, Syria is another hotspot that must be handled. If not, it will adversely affect so many other countries. I would consider that the US must have a more proactive policy in this respect and try to find real solutions that can ultimately put an end to the alarming situation in the region. 

Moderator: If you take that recommendation and put it in the context of what we’ve seen many American administrations do in the past – which is to get caught in the vortex of the nearly unsolvable, very complicated issues – does that not run the risk of consuming all the diplomatic oxygen that perhaps the rest of the region needs right now? For example, focusing on a Syrian grand plan of recovery, or Libya, and Yemen? There are many theatres that need engagement with the world’s superpowers. If the Israel-Arab conflict becomes the principle gateway, would that not hinder the new administration’s ability to tackle other significant problems? 

H.E. Fouad Siniora: Let us not forget that the interest of the new US administration is not restricted to our region; they have many other issues to address. But the problems of this region are very much intertwined and you cannot really address the situation in Syria without, for example, looking at what’s happening with Iran and its interventionist policy. It is not expected that the US will put boots on the ground everywhere. Rather, it should seek to empower the states in the region, particularly the moderate states. Be it through its relationship with Egypt, or with the Gulf States, the US could help develop a real effort together with select countries and start creating safe zones in Syria, for example. At the same time, the US should strive to create a force that can ultimately find some sort of way of intervening in the situation in Syria to force a peaceful solution. 
Engaging Iran at the end of the day is also important. After all, there are plenty of common interests between the Arab world and Iran, including domestic economic challenges. The Iranian leadership cannot afford to continue allocating substantial resources to politics and away from the real needs and interests of its people. In that regard, while we need to defend our interests, we would should ideally be able to extend a hand towards Iran. It is pointless to continue to waste and deplete resources in the region on something that is not going to be of benefit to anyone.

Moderator: President Trump is starting his first overseas trip in this region with a visit to Saudi Arabia. How should we interpret that and what do you hope the trip will deliver? What signals would you like to see come out of it and what would give you hope regarding some of the narratives that you have mentioned?

H.E. Fouad Siniora: President Trump is sending a real message by making this region his first stop, even ahead of meeting the group of G7 and other European leaders. He is coming to Saudi Arabia and meeting the leaders of the Gulf region, showing that he is interested and willing to engage this part of the world and that something must be done and soon.

This is a time of great challenges for OPEC. Hardly has it recovered from the oil supply shock of the US shale revolution than it has found itself faced with a new disruptive development: President Trump’s ‘America First’ energy plan.

In addition to its potentially far-reaching consequences for global markets and prices, the plan has specifically committed to “achieving energy independence from the OPEC cartel and any nations hostile to [US] interests”. This antagonistic creed comes as no surprise knowing that it had already been spelled out in an earlier context. In 2011, expressing his desire to enter politics and bid for the presidency, Mr. Trump stated in an interview with ABC News: “My big focus is China and OPEC and all of these countries that are just absolutely destroying the United States.”
Disturbingly, the latter statement echoes President Ronald Reagan’s political stance towards the Soviet Union and OPEC. Obviously, any analogy between the US’ confrontational approach towards the Soviet Union in the 1980s and towards China today might be out of topic here. Instead, we will focus on the parallels in the attitudes and policies towards OPEC, which are remnant from the 1973 Arab oil embargo and, in that context, from the loss of oil pricing power in favour of OPEC. Since then, the illusions of OPEC as a conspiring monopolist or colluding cartel have been hard to shed.

Regarding President Reagan, perhaps the best starting point is the turn of the 1980s, when in the wake of the Iranian Revolution and Iran-Iraq war, OPEC’s official selling prices rose sharply to reflect a severe market tightening. In that context, President Reagan’s first act in office consisted of an Executive Order repealing the prevailing domestic oil price regulation. This was seen as a necessary move to induce a demand and supply response, ultimately lowering petroleum imports, primarily from OPEC. Subsequently, several price-induced structural changes in the oil market combined to erode OPEC’s market power. 
Seizing on OPEC’s announcement in December 1985 of a major policy shift to regain market share, President Reagan claimed credit for the resulting global oil price collapse. In January 1986, he famously and impudently declared in a radio address that “deregulating the price of oil […] made oil prices tumble and brought OPEC […] to its knees.”
In light of the above, the Trump Administration’s energy policy agenda sounds like a déjà vu. In essence, the policy is geared towards mobilizing the US’ vast energy resources to minimize dependence on foreign oil and OPEC. More specifically, the new administration intends not only to support the shale revolution and continue tapping the US’ vast shale resources, but also to develop all hydrocarbon reserves, especially those located on federal lands, where drilling had been barred by successive administrations. 
Furthermore, discounting environmental concerns and brushing aside the fact that coal’s demise is not so much due to over-regulation than competition from cheap natural gas, President Trump has also committed to reviving the coal industry. Finally, while aiming to use domestic resources as a first-best alternative to foreign oil, the administration appears to consider Canadian oil among the second-best. In this respect, a series of decisions have been taken to enable the completion of the environmentally most controversial northern section of the Keystone XL pipeline system, ultimately shipping crude oil from the Athabasca oil sands of Alberta as far as the US’ Gulf Coast.
To be sure, every US president since 1973 has had, big plans for achieving independence from foreign oil, with different policies and outcomes. President Reagan and President Trump are no exception. While Reagan relied on using price signals to influence demand and supply,  Trump seems focused on the mobilization of primary energy resources to expand supply. For the latter, the likely effect is that even if US oil demand – thought to have peaked but now slightly growing – continues to recover, it will hardly absorb the potential supply additions. It is therefore very likely that the surplus production will be placed in the international market.
Consequently, the risk to OPEC is not so much being completely eliminated from the US market. After all, its members have managed to find other markets as their exports to the US have been shrinking to nearly half their 2008 peak of 5.4 million barrels per day. The risk rather is the US permanently gluts global markets and, as a result, brings prices further down durably. If this were to happen, President Trump would certainly brag on Twitter in the same manner as President Reagan did on radio some three decades ago about having “brought OPEC to its knees”.

How Best to Transition from An LNG Exporter to Importer?

Gulf Intelligence’s consultancy arm gathered fifty experts from across the Middle East in June to  to identify the next crucial steps of the increasingly influential LNG market.

The Middle East is entering largely uncharted territory as it explores comprehensive solutions to rebalancing one of the starkest juxtapositions in the global energy market.

The region holds more than 40% of global gas reserves and Qatar is the world’s biggest LNG exporter, yet the volume of LNG imports required by the region is quickly rising as domestic demand outpaces pipeline supply. Collaboration in identifying cost-effective and easy-to-implement strategies to create both an integrated import ecosystem and maximise the revenues of a growing export market is a priority for the region’s leadership, many of whom have long focused on their dominant role in global oil markets.

he Middle East could develop a gas hub where the commodity is freely traded with transparent prices by 2025, according to 29% of respondents to a GIQ Industry Survey. Another 37% said sometime after 2030 would be more realistic, while 13% believed 2020 possible – a higher percentage than many energy stakeholders expected. Alongside identifying collective data, price and regulatory parameters, the region must cost-effectively navigate market disruptions up to 2020. More than a third (36%) of survey respondents believed that the 50m tons of homeless LNG cargoes by 2020 – product without a predefined home – will be the biggest disruptive element in global LNG markets in the next three years. 

In the last three years alone, LNG imports into the region grew by more than 380% against a backdrop of relatively stagnant activity in other major energy demand hubs. In the midst of such growth, transparency is key. Therein lies the value of S&P Global Platts’ Middle East Marker (MEM), which was launched in January of this year. MEM is a daily assessment of the spot price of cargoes to reflect the growing importance of the Middle East as a destination, rather than exporter, of cargoes. The MEM covers cargoes delivered into Dubai, Egypt, Jordan, Kuwait and Pakistan, where collective LNG imports have soared from 5.9 billion cubic metres (bcm) of gas in 2014 to 28.6 bcm in 2016.

Egypt, Jordan, Poland and Pakistan became LNG importers for the first time in 2015. Pakistan signed a 15-year agreement to import up to 3.75m tons of LNG a year from Qatar in a $16 billion deal last February, for example. Bahrain, Vietnam, Honduras, South Africa and the Philippines also report rising LNG demand, while Indonesia started imports into its Arun terminal in 2015 after the facilities had been used for production since 1977. Many sweet spots for new and established exporters looking to expand their market share are on offer, but competition is tough.

The US’ first LNG export from the country’s Sabine Pass on the Gulf of Mexico last February through the newly-widened Panama Canal marked a game changer that influences every aspect of the global LNG ecosystem. The US’ share of global export capacity will jump to 14% by 2020 from base zero today, according to consultancy Energy Aspects, thus leveraging the country’s access to buyers in the Pacific and Atlantic basins. Just under a quarter (24%) of the country’s LNG exports were delivered to the Middle East and India in January of this year, which eats up potential market share for regional exporters looking to add to their client list. It also sends a very clear message from competitors across the Atlantic: watch out – empty, our ambitions are not.

Australia is also well positioned to become one of the world’s biggest LNG exporters thanks to a $200 billion investment into the country’s LNG industry over the last decade and to its strategic position in Asia. According to 23% of survey respondents, Australian LNG exports reaching full capacity will be the most disruptive event in the global LNG market up to 2020, while 15% argued that the biggest impact will be felt by the growing influence of the US as an exporter. Either one has the potential to push Qatar from its number one spot by 2020.

Cooperation between countries in the region and between companies – both state and private – must immediately become a stronger theme to give clarity on key data points. The historical performance of existing infrastructure, the supply gaps per season, the rate of investments into different parts of the supply chain and the policies and legalities that underpin the growing market are all vital pieces of knowledge. LNG infrastructure is never cheap and a greater awareness of the best strategies for joint ventures and public private partnerships (PPPs) will also give regional and international investors a clear viewfinder into market dynamics and whet their appetite. 

The evolution of the Middle East’s LNG market cannot happen haphazardly – this will largely result in expensive mistakes. The status quo is being rewritten – new demand, new supply, new hubs – and an ability to flex to these dynamic conditions will create the winners of a market that is climbing to the top of the global energy hierarchy. 
 

Global Crossroads 

Fortunate geography gives the Middle East’s import and export ambitions a competitive edge. At the crossroads between Europe, Africa and Asia, the region lies at the heart of the new energy corridor known as the New Silk Road. Local and global investors’ appetite to support the region’s growing energy hubs also helps, with interest in the UAE’s Port of Fujairah topping the list. The Port’s strategic geography just south of the Strait of Hormuz and its reputation as one of the world’s most established energy hubs makes it the best spot for a LNG exporting hub in the Gulf, according to 73% of survey respondents. Surprising in equal measure is that 5% voted for war-stricken Yemen, while Abu Dhabi, home of the region’s first LNG export in 1977, received no votes. 

What are the Top 3 Steps to Facilitate an LNG Import Ecosystem in the Middle East?

Strategies to cost-effectively funnel LNG imports into the Middle East to meet soaring domestic demand are rapidly moving centre stage in local governments’ energy roadmaps. The International Energy Agency (IEA) expects gas demand in the Middle East to nearly double by 2040 and BP’s latest Energy Outlook forecasts that the global LNG market will grow seven times faster than pipeline gas trade and will account for half of the world’s traded gas up to 2035, compared to today’s 32%. The Middle East benefits from having Qatar on its doorstep. But there is room for Doha to supply more than the current 40% of the region’s needs. 
A greater emphasis on speed appears to be emerging, after what has been a relatively slow start. Saudi Arabia-based Arab Petroleum Investment Corp (Apicorp) estimates that $10.3 billion of investments have been earmarked to build LNG import facilities across the Middle East and North Africa (MENA) in the medium term.
In 2009, Kuwait became the first Gulf country to import LNG and construction of the country’s onshore LNG terminal near the Al Zour refinery is due for completion in the early 2020s. Bahrain is scheduled to install a floating storage regasification unit (FSRU) at the port of Hidd next year, while the UAE’s Sharjah National Oil Corporation (SNOC) will start importing LNG into the emirate’s Port of Hamriyah in the first half of 2018. It also appears that a chartered floating storage and regasification unit (FSRU) at Ruwais in Abu Dhabi is currently favoured over initial plans to build an LNG import facility in the emirate of Fujairah. 
Still, the Port of Fujairah is pushing ahead with plans for its first ship-to-ship LNG transfer and it is evaluating interest in onshore bunkering facilities.
Saudi Arabia is eyeing LNG imports as it currently uses up to 1million barrels a day of oil for power generation. Riyadh and fellow Middle Eastern leaders’ support of the Paris Agreement, a global climate change deal, is deepening appetite for LNG as it is a more environmentally-friendly fuel and burns 40% fewer carbon emissions than coal during power generation. 
The FSRU market has emerged as a highly popular option amongst Middle Eastern countries as it enables them to begin imports on short notice and rapidly expand, or reduce, capacity. FSRUs are relatively cheap and their flexibility enables importers to sidestep issues caused by strained economics, fractious politics and extreme weather. Egypt is a case in point, with the country taking two units last year after importing an inaugural LNG cargo in 2015. Offshore LNG supplies also proved vital to supporting Yemen’s war-torn port city of Aden after fighting compromised the country’s own LNG facilities. It is little surprise then that the global capital expenditure for floating facilities is expected to rise by 264% to $41.6 billion between 2016 and 2022, compared to $11.4 billion between 2011-2015, according to Douglas Westwood’s World FLNG Market Forecast. 
There are still many black holes that need to be plugged to realize the Middle East’s LNG import ambitions. Speed is of the essence to ensure that blueprints detailing regulatory, trading and legal guidelines, as well as basic infrastructure like communications, are acted upon. Above all, countries need to identify and pursue a common set of goals.

1. A United Infrastructure Network

A widespread and robust infrastructure network that encompasses all, rather than a few, is required to provide strengthened import hubs and distribution across the Middle East. A country must have a range of LNG sources for energy security, both to plug a deficit and to provide a safety net when other gas supplies are hindered. Plans to build LNG import infrastructure must generate a baseline income to justify the cost of construction, but forecasting LNG volumes is not a simple task. Seasonal demand, unexpected outages and the growth of renewable and nuclear markets are all factors at play. A country’s LNG demand profile can change dramatically. Egypt moved from exporting 16.2 bcm of the 61.3 bcm it produced in 2010, to consuming almost all the 48.8 bcm it produced domestically in 2014, for example, according to the BP Statistical Review of World Energy. 
A new era of cooperation across the Middle East can accelerate the growth of import hubs, with 73% of survey respondents to an industry survey identifying the UAE’s Port of Fujairah as the best-placed energy hub to fulfil this purpose. Greater collaboration would also hasten efforts for better transparency for the price and legal architecture. Cooperation can extend to establishing a network of FSRUs, which are less expensive, have quick access to market and are geographically flexible. Combining these efforts creates a robust series of strategies to hedge against stranded supply, or unfilled pockets of demand – both are stressful and expensive scenarios. A fragmented approach, such as building LNG import infrastructure for one client, client, is risky. The customer could end up paying more for their LNG as growth in the renewables and nuclear power markets reduces the cost of both energy sources, or the customer could exercise their monopoly on a product that is required for the country’s energy security. 
 

2. Stronger Regional Cooperation

Cooperation amongst Middle Eastern countries will be the relief valve for the growing pressure on the region to cost-effectively satisfy LNG demand. Efforts must extend to carving out market-based solutions for pricing and data transparency and supporting the growth of strategic LNG import hubs, such as the Port of Fujairah. Poor communication and ill-directed competition will further weaken today’s fragmented market and see that the entire region ultimately falls short of its potential. The need for more regional allies is blindingly clear; the 230-mile Dolphin Pipeline remains the only transnational submarine pipeline in the Gulf, connecting supply from Qatar’s North Field to the UAE and Oman. 
Frank conversations amongst countries and between state and privately owned entities on the demand outlook is the first step to creating a strategic map showing how gas and LNG can flow freely across the region to where it is needed most, unhindered by inevitable natural, political and security glitches. The flow of LNG imports and exports between Argentina and Chile changes throughout the year, for example, with the cooperation ensuring that neither country is left short. This template could be applied across the Middle East. Regional cooperation does not translate into a lack of independence as countries are advised to better their energy security by having more than one source of gas and LNG supply. LNG can also be used to complement existing gas markets by acting as an insurance policy for when gas flows are strained, or halted. Realizing plans for a GCC-wide gas grid is obviously the ideal first step to better connectivity. But infrastructure must be designed with the demand profile of the 22nd century in mind, as populations and demand across the Middle East will continue to soar. Half a million people are expected to flock this year to Cairo, already home to 12 million people, while Qatar’s population of 2.6 million could swell eightfold by 2050, for example. 

3. Removal of Subsidies

Cutting gas subsidies will improve the Middle East’s energy economies by curbing high domestic consumption and import bills, with subsequent savings redirected to building urgently-needed LNG import infrastructure. In 2014, MENA was home to 5.5% of the world’s population and 3.3% of its GDP, yet it accounted for a staggering 48% of its energy subsidies, according to the World Bank. Efforts to facilitate growth and create price stability during the colonial era and post-independence quickly evolved into the overconsumption that is common place today. Subsidies, which some argue are legacy contracts, also encourage inefficiency at a time when the Middle East is trying to widen its global LNG export market. Nearly a third (29%) of  survey respondents said removing all government subsidies that fix domestic natural gas prices at very low levels is the most important next step to ensure that the Gulf maintains its position as an LNG exporting region. Momentum to cut LNG subsidies is building, with countries enjoying the tangible relief from cuts made for other energy products. The UAE saves $7 billion a year after ending petrol subsidies in August 2015, for example. Whether LNG subsidy cuts are absolute, or mimic the Iran’s more selective ‘Targeted Subsidy Reform Act in 2010’, must be decided upon – soon. Whatever the route, two points are certain; LNG subsidies must be cut and reform must be guided by a comprehensive education process.  

What are the Top 3 Steps to Maximize the Value of the Middle East’s LNG Exports?

The Middle East’s energy leaders are looking at an old conversation with fresh eyes. Maximising the value of gas reserves and subsequent LNG exports is more important than ever as rising global LNG demand opens a window of opportunity for the region to deepen its foothold. Plus the ‘collapse’ of oil prices since mid-2014 is galvanizing many oil-centric treasuries to revive dusty blueprints on how to diversify their energy production and export markets.  
An expanded infrastructure, easier access to capital, strategic port locations and transparent pricing structures are integral to the foundation from which a global LNG export ecosystem can flourish up to 2018 and beyond. Qatar, the UAE and Yemen illustrate the value of leveraging the region’s export potential. Qatar raced to the front of the gas pack in the 1980s as neighbours focused on oil production. Fast forward three decades and the country meets 40% of the region’s LNG demand. 
But Australia and the US threaten to steal Qatar’s crown by 2020, with the latter reviving a 120-year old maritime route to send LNG cargoes to Dubai and Kuwait last year. The US and Australia’s combined volume is expected to account for more than 90% of new LNG exports by 2020 and to represent most of a 45% increase in liquefaction capacity between 2015 and 2021. Amid intensifying competition, Qatar lifted a 12-year moratorium on development on its North Field, the world’s largest natural gas field, in April this year. The move will increase current production by around 10%, which will add around 400,000 barrels a day of oil equivalent to Qatar’s production. But will it be enough to keep competitors at bay?
Iran, which has the world’s second largest natural gas reserves, has ambitious export plans following the lifting of most of its sanctions in January 2016. But Tehran will most likely have to focus on satisfying domestic demand, as it is the world’s fourth-biggest market for natural gas, following the US, Russia and China. Doha can breathe easy for a while; Iran currently exports less pipeline gas than Myanmar or Kazakhstan, jointly home to less than 1% of global reserves.
Established and budding Middle Eastern LNG exporters must navigate customers’ firm demands. This includes an increasingly frequent avoidance of long term contracts – historically the bread and butter of LNG deals – in favour of short term deals. Shell’s LNG Outlook advises that LNG sellers need a large portfolio and sufficient flexibility to supply a growing number of countries. Those who can adapt the quickest will top the league table. Exporters must also keep in mind that oil-indexed LNG prices are likely to remain low for a while, with Brent oil prices unlikely to average above $60s/bl this year. This is positive for importers’ profit margins, but unwelcomed by exporters.  
Meanwhile, ambitious Middle Eastern LNG exporters must be ready to pounce upon the opportunity from the International Maritime Organization’s (IMO) decision in October last year to implement a considerably lower sulphur cap on marine fuel as soon as 2020, instead of the 2025 alternative. LNG as a fuel contains virtually zero sulphur, which will serve exporters well when the new cap of 0.5% m/m (mass/mass), down from the current 3.5% m/m, comes into force in just three years.  
But there is an obvious, yet oft-side lined, catch to bolstering the region’s LNG export ecosystem; ensuring a greater supply of domestic gas production. The Middle East needs to unlock the treasure chest beneath its soil – the region is home to 40% of the world’s gas reserves – to satisfy both domestic demand and burgeoning export ambitions.
 

1. Flexible Delivery

The power dynamics at the negotiating table have shifted. A need for flexibility lies at the core of customers’ new rulebook and producers must remain relevant by adapting to different volumes, timings and destinations with minimal fuss and cost. The oldest supply contracts have been particularly inflexible with volume, destination and pricing restrictions that are not generous to the end-user. Producers cannot afford for this old habit to die hard – adaptability is key. The majority of survey respondents (43%) said that flexibility, including a willingness for short-term contracts, is the most important next step to ensure that the Gulf maintains its position as an LNG exporting region. The spot and short-term market for LNG represented almost 50% of global imports last year. Qatar, which benefits from having an independent value chain, illustrated its flexibility when it immediately diverted every possible ton of LNG to support long-time ally Japan following the Fukushima nuclear crisis in 2011. Political shifts also reveal export opportunities that Middle Eastern producers must be quick to seize upon. For example, Doha is eyeing ways to counter competition from producers in the US and Russia to support the UK’s exit from the EU. Qatar already supplies 90% of the LNG imports required by the UK, the world’s fifth largest economy, but manufacturing growth means demand is likely to rise.

2. Enhancing Supplier-Buyer Trust

Expect the unexpected – an apt motto for the global energy markets, including LNG. Over the course of a contract, which can stretch past three decades, market dynamics will inevitably be buffeted by political, economic, social and natural influences. As the LNG market grows, so will opportunities for disturbances. A transparent and flexible partnership between suppliers and buyers is integral to finding the smoothest possible path to energy security and profitability. LNG producers’ willingness to consider shorter term contracts for their coveted Asian clients is a wise move to build trust and stronger partnership. Building LNG storage capacity near Asian customers was identified by 14% of survey respondents as the most important next step to ensure the Gulf maintains its position as an LNG exporting region. To deepen bankers’ confidence in the LNG market, especially as some suppliers shift to a preference for short-term deals, means buyers are investing in suppliers’ value chains to become shareholders of upstream LNG operations. In time, buyers’ commitment to suppliers’ operational chains could whittle down the amount of ‘homeless LNG’ – product without a pre-determined home – which is currently expected to reach 50 million tons by 2020. Building robust bridges of trust is essential to have a firm foothold in what is an intensely competitive market. 

3. Growth of LNG as a Bunker Fuel

Considered the ‘greenest’ hydrocarbon, LNG will play a central role in linking the old with the new; facilitating Middle Eastern countries’ evolution from hydrocarbon to low-carbon economies. There are many opportunities for LNG as the unprecedented shift towards greener growth in the global energy markets gains pace. The IMO’s decision last October to implement a 0.5% sulphur cap as soon as 2020, instead of in 2025, is a case in point. Most LNG has no detectable sulphur and LNG-fuelled vessels’ emission of particles and nitrogen oxide are considerably lower than that of vessels using other marine fuels. 
Adjusting infrastructure to suit LNG bunkering would elevate the global influence of local ports, such as the UAE’s Port of Fujairah. Already the world’s second largest bunkering hub, Fujairah is preparing to become an LNG server. LNG bunkering can reduce the daily fuel costs for a vessel by $10,000, but creating the architecture to make LNG bunkering common place will only succeed if customers demand the infrastructure. Middle Eastern refiners must break the chicken-egg scenario of which comes first – the demand or infrastructure – and actively guide the global shipping market towards a preference for LNG bunkering. Active promotion in Singapore and other major energy hubs is paying dividends. A pro-LNG bunkering message must filter down from the top of the region’s energy hierarchy to leverage the current window of opportunity through to 2020, especially as some shippers may prefer to invest in scrubbers. A robust legal framework and detection methods for the 0.5% sulphur cap must also be created to ensure that those avoiding compliance through easy loopholes do not dash momentum for the wider market.