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GCC needs gas regulator to develop pricing mechanism, says report

Gulf Cooperation Council (GCC) countries need a gas regulator to develop a pricing mechanism as the present situation is unsustainable, according to a report from PwC consultancy firm Strategy&.21 Oct 2016

A pricing mechanism is needed that reflects global and regional supply and demand, Strategy& said.

"The time to act is now, while oil prices are low and reducing gas subsidies will have a less severe impact on the region’s economies," the report said. The regulator should cover well-head gas and costs associated with processing and transportation of gas, it said.

Gas supplies in the GCC are regulated by the state, and prices are "considerably below global prices", supporting local economies and giving an advantage to petrochemical and energy-intensive industries, Strategy& said.

However, production costs are set to rise by between one-third and two-thirds as sources of gas change and become more technically challenging, it said.

"GCC governments will find it increasingly difficult to maintain current prices … given the growing gap with production costs," the report said.

"If the cost of gas does not start to reflect its true market value and appropriate investment in the oil and gas sector is not allocated soon, the GCC will be unable to meet demand for gas in the future," George Sarraf, a partner with Strategy& told Gulf Times.

Strategy& proposed an "ambitious, longer term option" in the form of a dedicated regional gas hub, possibly in Dubai.  

This would involve physical infrastructure regionally and nationally, a trading platform to set a benchmark price, and a supra-national regulatory system, it said.