Pipelines and the Exploitation of Gas Reserves in the Middle East
Dagobert L. Brito
The Middle East is endowed with approximately 20 percent of the world’s proven reserves
of natural gas in the world. The cost of transporting Middle Eastern gas, however, is so high that
it is difficult to exploit it commercially outside the region. The European market for gas can be sup-
plied in the foreseeable future from North Africa, Russia, the Transcaucaus region, and the North
Sea. These suppliers have a significant locational advantage that dominates any edge that Middle
Eastern gas may have in the cost of production. The high cost of transporting liquefied natural gas
also limits the amount of Middle Eastern gas that can be sold to the Far East.
Gas can be transported by pipeline or liquefied and then shipped by sea on special liquefied
natural gas carriers. The cost of transporting 1000 cubic feet of gas 1000 miles by pipeline is ap-
proximately $.50. The cost of transporting 1000 cubic feet of LNG a distance of 1000 miles by sea
is approximately $.30. However, the cost of liquefaction and regasification is approximately $1.40
per 1000 CF. Thus, for natural gas, transporting the energy equivalent of one barrel of oil a distance
of 1000 miles costs $3.00 by pipeline and $10.20 if it is liquefied and transported by sea. By con-
trast, the cost of transporting a barrel of crude oil is approximately $.10 per thousand miles.
Natural gas and oil are not perfect substitutes. Gas has environmental advantages and nat-
ural gas is a more efficient fuel in electricity generation. However, this advantage has been reduced
by new oil fired combined cycle technologies; it is unlikely that in the long run the cost per kilowatt
generated with gas can deviate far from the cost per kilowatt generated with oil.
Natural gas and oil compete in the energy market. Thus Middle Eastern countries that pro-
duce oil are competing with their oil when they export gas. Selling gas reduces the market for oil.