The UAE is facing a severe gas supply shortage and an expected deterioration in the crisis could force it to revise plans to expand its LNG production, an Abu Dhabi gas official warned yesterday.

Despite a steady rise in domestic gas output, the shortage has widened over the past few years because of a surge in domestic consumption, prompting some power plants to use costlier diesel fuel, said Hamed Al Marzouqi, acting head of the market research at Abu Dhabi Gas Liquefaction Company (Adgas).

"The UAE faces a severe shortage of gas and the effects of the coming crisis are already being felt," Marzouqi told the Gastech conference in Abu Dhabi.

"The UAE's gas demand has increased tremendously and is expected to increase further on the back of massive economic expansion… ensuring adequate gas supply to meet the massive growth in demand will emerge as a challenging issue especially for power generation."

Marzouqi said the supply-demand gap during the last summer widened, forcing the UAE power stations to burn "expensive diesel".

"Availability of gas for new power plans will be an important issue for the next few years… gas re-injection in to the oilfields has also become an important issue for the UAE in recent years," he said at the four-day conference.

Marzouqi did not specify the shortage but in a recent study, a UAE energy official estimated it at more than one billion cubic feet per day.

Khaled Al Awadi, Gas Operations Manager at the state-owned Emirates General Petroleum Corporation (Emarat), put the country's current gas consumption at around 5.5 billion cubic feet per day and demand growth at nearly 13 per cent, one of the highest growth rates in the world.

He said a little more than four billion cubic feet are available for use, creating a shortage of more than one billion cubic feet, which is met through oil and natural gas liquids.

The UAE has the world's fifth largest gas deposits of around 6.5 trillion cubic metres but most of them are associated with oil, making their separation a costly process. Expansion of gas output also entails the UAE to increase crude production, which is against its Opec commitments.

The shortage has prompted the UAE to turn to Qatar to bridge the gap under a contract to buy around two billion cubic feet per day that covers its needs and those of nearby Oman.

The gas is transported through the Dolphin subsea pipeline and officials have spoken of possible increase in supplies in the future although this would require signing another agreement with Qatar.

Another deal was signed between Crescent Petroleum of Sharjah and Iran a few years ago to import natural gas but supplies have been delayed by a price rift following a sharp increase in crude prices in 2008.

Industry sources said the rift could be tackled now that prices have sharply fallen. "Despite the abundance of gas in the UAE, most of the available gas is sour gas, which means cost of production could be significantly higher," Marzouqi said.

"These challenges facing the UAE gas industry puts the role that Adgas can play under spotlight… will Adgas continue producing more LNG for valuable cash, taking into account the rising fuel price, or will the gas being used by Adgas for liquefaction purposes be fully or partially utilised for local consumption?"

Adgas, the UAE's only LNG supplier which is controlled by Adnoc, produces around eight million tonnes per year, most of which is exported to Japan under a long term agreement.

Adgas officials last month spoke of plans to build a new production train, which is in contrast with Marzouqi's warning that the gas supply shortage could stifle the company's expansion strategy.

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