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Saudi Arabia, Abu Dhabi form LNG alliance as gas demand surges

London — Saudi Arabia and Abu Dhabi have agreed to explore global opportunities in LNG as demand for gas in the Gulf's largest Arab economies surges.

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State-controlled producers Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) said this week they will work together on potential future gas and LNG investments and share technical knowledge after signing a framework agreement on the sidelines of the ADIPEC energy conference.

"The UAE and the Kingdom of Saudi Arabia have a strong relationship built on shared strategic interests," said Sultan Al Jaber, ADNOC's CEO in a statement following the deal. "Increased cooperation between ADNOC and Saudi Aramco will ensure greater energy security and long-term economic prosperity for both nations."

Despite holding significant upstream gas resources and exporting LNG, the UAE - the Gulf's second-largest Arab economy after Saudi - is dependent on supplies of natural gas imported from Qatar through the Dolphin pipeline. However, Doha is locked in a bitter political dispute with larger Gulf states who have imposed an economic boycott on the gas-rich sheikhdom. Although flows through Dolphin have continued throughout the boycott, the prospect of securing additional supplies from Qatar to meet growing demand are unlikely unless a political solution to the dispute can be found.

To meet future demand some of the seven emirates in the UAE are now turning to LNG imports. Dubai - the federation's second largest sheikhdom and once a major gas producer - is receiving LNG shipments at its Jebel Ali receiving terminal. Meanwhile, Sharjah is considering building an offshore regasification facility.

The UAE holds around 6 trillion cubic meters of gas reserves produced 60.4 Bcm last year, mostly from Abu Dhabi, according to the latest BP Statistical Review.

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Consumption in the country outpaced production by 11.8 Bcm at the end of 2017, according to BP figures.

The UAE has recently demonstrated it will to invest heavily in domestic gas projects. Earlier this month, ADNOC signed a deal with Italian giant ENI to take a 25% stake in an gas offshore project in Abu Dhabi.


Saudi Arabia faces similar supply demand challenges, as its natural gas production in recent years has also been struggling to keep pace with surging demand from the power generation sector, industrial development, and expanding economic activity.

Both gas production and consumption have reached 111.4 Bcm last year, according to BP. Although the kingdom is currently self-reliant with its gas reserves, its ambitious plan to expand natural gas-based industry notably in petrochemicals could force the country to seriously consider LNG imports in order to close its future supply gap.

"Saudi Arabia is not in such a strong economic position compared to the UAE because of its lack of diversification from oil," said Guy Broggi, Independent LNG Consultant, former Senior LNG Adviser at French oil company Total.

"Therefore, it wants to get a foothold in the [gas] system," he added.

"The beauty of LNG is that it can go everywhere," said Broggi. He highlighted the civil war in Yemen and the Qatar diplomatic crisis with Saudi Arabia increasing energy security concerns in the region.

Saudi has recently been seeking strategic alliances and partnership with LNG suppliers. The kingdom has expressed an interest in Russia's Arctic LNG projects.

Broggi thinks Saudi Arabia may seek to develop further regional alliances, notably with Egypt. Cairo is set to become a significant LNG exporter thanks to new gas discoveries, such as the giant offshore Zohr gas field.


The need to adjust LNG and natural gas supply growth strategy in the Gulf countries comes at a time when more FID on LNG liquefaction projects are expected. Qatar and Canada are on the brink of major expansions.

S&P Global Platts Analytics expects liquefaction an additional 200 Mcm/d of capacity to come on stream by the end of 2019 globally. Most of the new supply will be from the US, Australia and Russia.

Meanwhile, LNG is becoming more global and supply more flexible thanks to increasingly transparent market-based pricing, soaring derivatives trade and new emerging Asian hubs.

-- Lucie Roux,

-- Edited by Andy Critchlow,