The GCC region is looking to embrace ‘greener’ opportunities in its bid to reach carbon neutrality by 2050. One of the opportunities being presented comes in the form of natural gas.
Natural gas is a ‘transition’ fuel, boasting much lower carbon dioxide emissions than coal, oil and other fossil fuels still being used by economies in the region for their power needs. In fact, natural gas can reduce carbon emissions by 30-50% and, with certain measures in place, the natural gas infrastructure can accommodate hydrogen. This is another critical benefit.
Thanks to the development of untapped natural gas reserves, the rise of renewable energy in the region, an increased focus on nuclear power, and more efficient desalination (reverse osmosis), we are seeing gas consumption decline within the power sector (MEES, 29 March). Together with the development of new gas reservoirs, this is resulting in an abundance of natural gas for decarbonizing important industrial and transport applications. Couple this with advances in gas transmission infrastructure and natural gas is poised to contribute significantly towards the region’s energy accessibility, affordability and sustainability.
GCC TAKING ACTION
Many regional governments are already knowledgeable about the advantages of using natural gas, as well as the significant potential for its use to advance the region’s net zero objectives. In fact, some are already taking action.
One example of this is the ongoing Estidama project of Adnoc to develop a comprehensive natural gas pipeline network to reduce congestion and ensure the supply of its gas across the UAE (MEES, 7 July 2023). Further to this, OQ, the exclusive operator of Oman’s natural gas transmission network, has already started its Saib Project (MEES, 16 August). This is a 208km gas pipeline designed to further increase natural gas accessibility in the southern Dhofar region. Similarly, Saudi Aramco earlier this year awarded contracts worth more than $25bn to implement its strategic gas expansion strategy (MEES, 5 July) as it targets gas production growth of more than 60% by 2030 (when compared to 2021).
The emergence of these national gas networks allows for cross-border pipelines or a trans-GCC gas grid. Having a gas grid would allow the region to improve price points, as well as cutting down on LNG liquefaction and regasification costs, displace oil consumption and, crucially, reduce carbon emissions.
MOVING TO A CENTRALIZED SYSTEM
These high-pressure gas grids are essentially network industries with significant capital costs and create value through mutually beneficial, shared access to such assets.
In the GCC region, such pipelines are owned and operated by different entities, mostly for specific supply sources and end-users. In the absence of regulation of natural gas transmission infrastructure, the utilization of the assets cannot be maximized or optimized.
The third-party access to gas infrastructure is not specifically regulated, and access to pipeline capacity is a complicated ad-hoc process.
For international pipelines, full and free access to all enroute domestic markets as per World Trade Organization rules is not always admitted.
Often different pipelines are under different design, maintenance and operational regimes resulting in flow complications and availability issues. The transmission charges could be substantial because of the existence of multiple transit fees.
Most importantly, wholesale gas pricing is a challenge. Given most prices are politically regulated, cross-border flows could result in subsidy leakages. Since the marginal power generation technology is gas-fueled, gas prices (and inherent subsidies) limit regional power exchanges and optimal utilization of the regional power interconnectors.
Penspen has dealt with all aspects of natural gas pipeline infrastructure, inclusive of but not limited to, planning, designing, deployment, maintenance, operation, safety and regulation. In our view, on the national level, an independent, centralized gas transmission system operator is ideal for gas dispatching; negotiation and management of interconnection agreements; highlighting marketable capacities; performing periodic operational and planning studies; applying a common maintenance regime; ensuring asset integrity; optimizing use of storage and line packing for grid flexibility; dispute settlement; advising government on tariffs; and ensuring compliance on uniform safety regulations. Such national operators could be created through leasing of all gas transmission infrastructure to the national operator under a revenue sharing arrangement. Overall, this would save costs; maximize capacity utilization while giving precedence to existing bilateral contracts; improve reliability; and safety of the system.
IN PRACTICE
One example of this is the National Control Center in the UK. It performs the gas trades, looks after the system, issues marginal notices and demand side response contracts, ensures a certain level of operating gas reserve, and handles all emergencies. In France, the same role is performed by GRTgaz, while the Snam dispatch center does this in Italy.
If centralizing the gas operations is not possible, common regulatory guidelines could be applied to all natural gas system owners and operators. Using another example from the UK, in 2005 following the liberalization of its gas network, a Uniform Network Code was created, with all relevant parties expected to follow it.
The code essentially developed common rules for anyone looking to gain access to the gas transmission system, as well as providing system security and safety assurances. It also ensures that pricing reflects the real costs of the services, and develops and maintains a robust dispatching system.
NEXT STEPS
We have seen some really impressive movement on the pathway towards net zero from the GCC region, but as with all journeys like this, there is still some way to go. We are seeing significant advances in both technology and techniques, which will allow us to continue the great work, and build on the momentum.
For the GCC region, the next frontier is making its networks operationally ready for hydrogen. This is already happening across Europe, with Penspen recently assessing the hydrogen readiness of the existing Portuguese natural gas transmission system. The European Hydrogen Backbone, which aims to accelerate Europe’s decarbonization journey by enabling existing and new pipelines to become a competitive, liquid, pan-European renewable and low-carbon hydrogen market, is just one example. What it does show us is that there are significant opportunities on the horizon.
So, by future-proofing the gas grid, the GCC region would be maximizing its use, reliability, availability, affordability and sustainability, all in the mutual interest of stakeholders.
*Bilal Hassan is Principal Energy Transition Consultant at Penspen.
