UAE looking to invest in US and Canada gas projects

The United Arab Emirates is considering investing in US and Canadian gas projects to take advantage of low prices created by the shale boom, as Gulf states increasingly turn to imports to meet soaring domestic energy demand.

Despite sitting on some of the largest energy reserves in the world, and sitting alongside big gas producers such as Qatar and Iran, the UAE and nearby Kuwait are increasingly importing gas to meet surging demand for electricity from their growing populations.

Last year the UAE announced it would begin building the region's first permanent terminal for liquefied natural gas tankers, and the country's energy minister says the country is now looking at investing in North American gas projects in order to secure cheap supplies.

"In the GCC we may follow the trend of considering investments in the US and Canada to bring some of that gas back home . . . the UAE is seriously thinking about that now," Suhail Mohammed al-Mazrouei said at Chatham House on Monday.

Mr al-Mazrouei said a team within Mubadala Petroleum, the state-owned energy company, was exploring investments and would make recommendations to its board of directors.

Investments by the UAE could involve joint ventures with Japanese, Indian and Chinese companies, some of which have already invested in North American gas export projects.

US natural gas prices have ranged between $2 and $5 per million British thermal units over the past two years - a fraction of the cost of LNG imports to Asia, which can be as much as $20 per Mbtu. Mr al-Mazrouei did not disclose how much the UAE currently pays for LNG shipments, which can come from as far afield as Australia and the Caribbean.

But he said: "there is a logic to have a contribution from the US and Canada. What is that contribution, whether it is 10 per cent or 5 per cent we don't know, it is premature to say, but there is a logic."

The comments underline the challenge facing Gulf monarchies as they wrestle with soaring energy consumption by their populations as well as energy intensive industries such as aluminium smelting, which governments across the region have lavished investment upon.

Although countries such as Saudi Arabia, the UAE and Kuwait sit on plentiful gas reserves, they have historically made little attempt to exploit them, relying instead on "associated gas" from oil production to meet domestic needs.

But with demand for heavily subsidised energy soaring, Saudi Arabia now burns some of its domestic oil production to generate electricity, reducing the volume of crude available for export. The UAE will continue to be a long-term gas importer, according to Mr al-Mazrouei.

The UAE currently imports significant volumes of gas from Qatar, one of the world's largest producers. Nearby Iran is also aiming to increase production if sanctions against its nuclear programme are lifted, and UAE-headquartered Dana Gas is considering a project to pipe Iranian gas to the Gulf states.

Piped gas tends to be far cheaper than LNG transported by sea because it avoids the costly process of cooling gas into liquid for shipment and then regasifying it, but Mr al-Mazrouei said the UAE wanted to maintain the option of LNG imports.

"We have a preference for pipeline gas and we are also investing in raising the capacity of the Dolphin pipeline [which brings Qatari gas to the UAE] but the question is going to be not to rely on one source," the minister said.

Analysts say Gulf states are wary of depending on Qatar for supplies because of regional rivalries and a perception that Doha charges too much for its supplies.

"Qatar has enough gas to supply the rest of the Gulf, but its reputation in the region is similar to Gazprom's in Europe in that there seems to be reluctance to be dependent only on Qatar," said Thierry Bros, senior LNG analyst at Societe Generale.

Mr al-Mazrouei also said the government was considering an increase in heavily subsidised domestic energy prices in order to curb consumption.

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