Al-Monitor Pro

The case for GCC natural gas integration 


Al-Monitor Pro Members


Kate Dourian

Non-resident fellow at the Arab Gulf States Institute


Aug. 24, 2023

Bottom Line:

The emergence of an East Mediterranean gas hub begs the question of why the Gulf Cooperation Council (GCC) has not promoted an integrated gas grid. The GCC states sit on over 20% of global gas reserves yet all but two of its six members are net importers and thereby exposed to price volatility and supply disruptions. A common gas market would enhance energy security through optimal use of available reserves and infrastructure.

Background Facts:
  • Russia’s invasion of Ukraine in February 2022 led to an energy crisis in Europe amid a scramble for alternative supplies that disrupted trade flows and sent LNG prices on the spot market soaring to a record. 
  • In the past week, gas prices have again risen because of a threatened strike at LNG facilities in Australia. Qatar, the United States and Australia are the biggest exporters of LNG, which leaves the market reliant on a small pool of suppliers
  • Egypt and Israel showed how existing gas infrastructure can be shared during the 2022 energy crisis as Israeli gas flowed to Egypt and led to resumption of LNG exports from dormant Mediterranean terminals.
  • Development of gas discoveries offshore Cyprus with proposed linkages with established producers Egypt and Israel opens up new export possibilities both to Europe and energy-poor nations in Africa. 
  • The Abraham Accords changed the Middle East’s political dynamics, allowing the UAE to enter Israel’s upstream gas sector. Even Israel and Lebanon resolved a maritime border dispute, proving that economic interests can override political differences. 
  • The GCC was fractured during the embargo against Qatar, but even during its diplomatic isolation Doha maintained gas flows to the UAE and Oman via the Dolphin Pipeline, the region’s only cross border energy project.  
  • There is precedent for energy integration among the GCC states. The GCC Common Interconnection Authority linking the GCC electricity grids is functioning but has not achieved its full potential. It is being expanded to Iraq, which suffers from a gas and electricity shortage. 
  • GCC member Qatar is one of the world’s top three LNG exporters and will soon have additional capacity with further development of its North Field. Except for Saudi Arabia and Bahrain, all the other GCC states are net gas importers. 
  • Iran has the world’s second largest conventional natural gas reserves and managed to expand its gas production capacity even amid sanctions. It might in the future have surplus gas for export.  
  • The UAE is building a new gas liquefaction plant as it develops its own sour gas reserves in a bid to attain self-sufficiency. Oman has also expanded its LNG production capacity as demand picked up.  
  • Saudi Arabia plans to spend $110 billion to develop its unconventional gas rather than import. The kingdom at one time considered building an LNG terminal on the northern Red Sea to be supplied with gas from Egypt. Given close ties between the two countries, this could have opened the possibility of an alternative market for East Mediterranean gas but the plan did not proceed.  
  • Egypt’s soaring domestic demand for natural gas means it has no surplus for export and it relies on Israeli gas for the Damietta and Idku LNG plants. Even if Saudi Arabia and Israel were to establish diplomatic relations, it is not likely to extend to energy cooperation. 
  • Iran and Qatar hold the world’s second and third largest conventional natural gas reserves, respectively, after Russia. Qatar is expanding LNG capacity from 77 million mt/yr to 126 million mt/yr. Iran has little surplus capacity but, if sanctions are lifted, it could potentially boost output substantially. The lifting of the embargo on Qatar and recent improvement in ties between Riyadh and Tehran open up potential for energy cooperation and could be the basis of a regional gas grid. 
  • The Gulf states rely heavily on natural gas for power generation and demand is growing along with economic growth. The transition to renewable energy for electricity generation will take time so more gas is needed in the short-term. 
  • Demand for oil is expected to decline as the transition to alternative energy sources gathers pace in the global transition to net zero emissions, while natural gas will have a larger share by mid-century. Renewable energy like wind and solar is not a strategic commodity and requires a more collaborative effort to develop. This opens up possibilities to repurpose existing infrastructure to support a more integrated green energy belt across the GCC and create regional supply chains to support the transition. 
Alternative Scenarios:

Scenario 1: Regional integration is slowed by lack of trust and competition.

For a regional grid along the lines of an EU-type gas market to develop requires a certain level of trust between the GCC states themselves and with Iran that is currently lacking. The Gulf oil and gas producers share a common desire to secure higher prices for their exports but they compete in a number of key other sectors as they diversify their economies. That the GCC has failed over the years to establish a common currency is indication that further economic integration will be challenging. If anything, the tendency has been for more nationalism rather than regional collaboration.  

Scenario 2: Renewable energy interests prompt some forms of integration.

The GCC countries are not on the same page or speed in their renewable energy programs. Saudi Arabia, the UAE and Oman are developing green and blue hydrogen projects that could displace natural gas and liquids in transportation and electricity generation. An interconnected grid could be adapted to carry hydrogen within the region given the high cost and logistics of exporting green or blue ammonia.   

Conclusion - Most Likely Scenario:

The transition to renewable energy and creation of regional cross-border trade in clean energy and hydrogen is the more likely scenario to succeed. Already, the UAE’s clean energy developer Masdar and Saudi Arabia’s Acwa Power have entered into partnerships to develop solar and wind projects and there is scope to expand this cooperation within the region and abroad. With electrification gathering pace as part of the ongoing decarbonization effort in much of the Middle East, a pooling of technical expertise to create a clean energy space will benefit a region that is most at risk from the impact of climate change. 

Contributor Background:

Kate Dourian is a fellow of the Energy Institute in the UK and a non-resident fellow at the Arab Gulf States Institute in Washington. She is a contributing editor at MEES and senior editor at Iraq Oil Report. From 2015 to 2018, she was MENA program officer at the International Energy Agency. Her past experience includes 13 years with S&P Global Platts and 17 years with Reuters. 

Kate is winner of the 2018 Lifetime Achievement Award for the advancement of energy journalism by the Abdullah bin Hamad al-Attiyah International Foundation and the 2022 Lifetime Achievement award from Gulf Intelligence. A dual British/Swiss national, Kate speaks fluent French, Arabic and Armenian. 

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