OAPEC news Bulletin Feb 76

OAPEC NEWS BULLETINS
(February 1976)

Future Prospects For Utilization And Conservation
Of Arab Gas

By

Hocine MaltiOAPEC Adviser

The Arab petroleum-producing countries are at present concentrating their efforts mainly on the development of their oil resources but sight must not be lost of the fact that these countries also possess sizeable reserves of gas or associated gas. To date, gas in these countries has been given little attention and the goal of this article is to emphasiseits importance as a source of energy as well as a raw material for industry and to propose methods of exploiting its vast potential for various uses or, at least, of conserving it for future utilisation.

The consumption of gas in the world has, naturally, followed that of petroleum. There has been rapid increase in its use since the turn of the century with the biggest increase in exploitation being from 1945 to 1960. This followed the effects of World War II when the world’s energy needs increased significantly.

In 1925 the world’s gas consumption represented soma 50 million oil-equivalent tons or about four per cent of the total energy consumption. In 1974 total gas consumption increased to some 1,100 million oil-equivalent tons or nearly 20 per cent of the total energy consumption. Thus, the requirements for gas have been multiplied by a factor of 22 over a period of 50.

It is noteworthy that, out of a world sales production in 1974 of 45,000 billion cubic feet of gas, the Arab countries produced 850 billion cubic feet or less than two per cent but that, as fas as reserves are concerned, they own nearly 17 per cent of the known deposits.

It should also be noted that in 1974 the quantities of gas produced and lared in Arab countries reached the mammoth total of 2800 billion cubic feet — more than three times the quantities sold and about 40 per cent of the volume flared throughout the world.

Compare this with the situation in the United States during the same period :

Sales production : 23,000 billion cubic feet —nearly 50 per cent of the world sales volume.
Flared gas : 250 billion cubic feet — slightly above one per cent of the sales production and more than ten times less than the same factor in Arab countries.

Such figures expose the following shortcomings :


1 . Arab petroleum and gas-producing countries concentrate too much on oil and ignore the importance of their gas resources. So far as oil is concerned, the Arabs own 56 per cent of known reserves and produce 32 per cent of the amount consumed in the world.

2 . There is much waste of Arab gas resources. Had the quantities of gas flared in Arab countries in 1974 been sold at 1.50 $/Mcf, which is actually about the world market price, the eamings would have reached $4 billion. These quantities, expressed in their oil-equivalent value and sold at 11.5 $/bbl, represent a sum in the order of $5.5 billion which is more than 20 times the current annual expenses of all the petroleum compagnies in the Arab world.

Such waste should be avoided and, if the oil compagnies are responsible for the situation, it should be made known that this state of affairs will not be tolerated any longer.

Naturally, the position of gas is more difficult than that of oil since it

Is a sub-product of oil. Each time a barrel of oil is produced, it brings to the surface so many cubic feet of gas which is supposed to be flared for security reasons — an expensive form of ensuring safety.

Oil has the advantage that it can be stored under normal conditions of temperature and pressure at a minimum cost. Nevertheless, when fabulous amounts of money are flared daily in Arab countries in the form of gas this surely warrants serious consideration of evolving some method of savong this enormous loss.

Certainly, the Arab countries cannot be compared with the United States where all quantities of gas produced are consumed on the domestic market and where there is need for importing more to cover all requirement. Yet, the need for the Arab countries to use full their bounty of natural or associated gas, either by employing it in industry or storing it, is a factor of paramount importance to their well-being.

Gas can be used as a source of energy (natural gas, LNG, LPG). In the majority of the Arab countries, the domestic consumption of gas is pratically nil. Even the areas of small consumption it is confined to the needs of the petroleum industry (the functioning of engines, turbines, etc., on oilfields or in industrial units such refineries). There are few Arab countries where there are natural-gas distribution networks even though electricity networks are extensive. Why not natural-gas distribution system for households instead of electricity when gas is considered as nil ? Furthermore, why not create local industries for butane-and propane-bottling instead of importing such supplies for domestic usage ? Such industries could be created at national or regional level.

Gas can also be sold on the world market either in the form of natural gas or as liquefied natural gas (LNG). Yhe recent sales agreements reached by Iran with a number of European countries for the export of natural gas, the construction of gas lines between Algeria and Europe, Through Sicily and Italy on the one side and Sapin on the other, offer proof enough of the feasibility of the transport of natural gas on an intercontinental scale.

The commercial problem offers the greatest challenge. This will not be solved unless the Arab producers act in concert : The construction of gas-transportation networks at regional level, the implementation of plans to build joint liquefaction plants to other coordinative measures

all which will ensure lower investment costs and economical operative running and, overall, will be in accord with steps already taken to achieve the economic unity of the Arab world.

Commercial constraints, however, can be by-passed in the light of the follwing :


1. A major limitation in the utilisation of gas compared to petroleum is the heavy investment needed today in the construction of such a new industry. One of the tasks of the recently created Arab Petroleum Investment Compagny could be the financing of such projects.


2. Statistics on world consumption in the past and all predictions made so far show that gas is the energy of the future. It is clean compared whith coal or petroleum which are polluants and it is safer than nuclear energy, the use of which will be limited for many years because of the danger it presents.


3. The actual cost of all kinds of energy sources are high and will continue to rise so that even if investment costs for developing the gas industry are steep this source of energy wil continue to be competitive.

The petrochemical industry offers another possible field for the use of gas. This industry, a recent arrival, is developing quickly and expanding everywhere. The number of petrochemical products and their fields of application increase every day and cover a variety of areas such as agriculture, the automobile industries, aeronautical sector, the garment trade, furniture manufacture, packing and many other activities. The petrochemical industry should be developed without delay in Arab countries — here again through national or regional effort. There are markets for petrochemical products in the Arab countries which are big importers of both industrial equipment and consumer goods. Market also exist outside the Arab world where the growth of demand for such products increases year by year.

Urgent Arab action is needed. Today we are suffering from the consequences of our subservience to the industrialised powers in the 1950s when the Arab countries were used as suppliers of oil as a raw product and when our efforts to create even the first industry after production, i. e. refining were beset by all kind of difficulties. Now the exploitation of gas should not be delayed. If it is then, once again, the Arab countries will still be furnishing the raw material and buying the finished product.

Several factors give promise of rewarding results, chief among them the fact that gas transformation is a relatively young industry which means that there will be ready markets for Arab products. Important also, is the knowledge that investment needed in Arab countries will not be excessively high.

And, if the Arabs fail to utilise their gas resouces, what then ? Severe conservation rules must be applied. There are different methods which can be easily implemented :


1. Control and reduce, if necessary, the output of oil from fields with a high gas-oil ration.


2. Impose penalties on oilfield operators who flare their gas.


3. Best of all methods would be to recover all gas produced — except small quantites necessary for the security of industrial installations — and re-inject it in geological reservoirs. It can be re-injected either in oilfields, which have reached the stage of abandonment, or in layers other than the oil-bearing formations (water-bearing and others) or, in some cases, in the oil-bearing reservoirs themselves where it will facilitate oil-recovery. Naturally, the gas fields themselves are the ideal places for the storage of associated gas.

Such a policy may be jointly implemented — two or more producing countries can co-operate to make up joint storages or to use joint compression and transport means. Such an operation, of course, would be costly. It would nean the provision of thousands of horse-power units for recompression and the construction of hundreds of kilometers of gas lines. Nevertheless, if the historical responsibilities the countries have in relation to their own peoples and, indeed, the whole humain race, are taken in consideration, the necessity for action is clearly apparent. Finance could be provided through the creation of a gas conservation fund fed by a special tax paid by each field operator for each cubic foot of gas flared. This is not a new idea. Strict gas conservation rules are in force in such industrial countries as the United States, Canada and Britain.

At a time when the entire world has realised the necessity to conserve existing sources of energy and to find new ones on our planet, which must save its dwindling reserves of raw materials, it must be the duty of the Arab countries to join in the world effort either by using or conserving their bounty of gas. By so doing, they can provide for themselves a secure economic foundation in the post-petroleum era.