Potential impact of methane hydrate development on GCC and NEA energy trade dynamics: The Gulf perspective

Northeast Asian (NEA) region has been one of the biggest fossil fuel clients of the Gulf Cooperation Council (GCC). The emergence of unconventional hydrocarbons, such as shale (oil & gas), coalbed methane, methane hydrates, biogas, coal gasification, etc. will naturally have an effect on the ongoing bilateral trade relations between the two regions. The development of such fossil fuel alternatives and more important the notion that the NEA is taking such alternatives into considerations poses a threat to GCC economy and the social welfare of the states in the region. In this study, we highlight the historical energy trade partnership between the two regions, the evolution and scientific basics of an alternative fuel source, primarily methane hydrate, a literature review on the methods of methane hydrate extraction, the challenges faced and most importantly, the uncertainty underlying the pricing of an alternative source which has yet not reached commercial production and consumption. Methane hydrates are present in substantial quantities in NEA and have the potential to disrupt global energy markets once economical extraction methods are identified and developed. Any NEA country that is able to exploit its methane hydrate resources will potentially alter its need for hydrocarbon imports, greatly impacting any future energy trade relations between NEA and GCC countries. However, one must account for the time period required for the development of methane hydrates as well as the ensuing political and technical challenges that could hinder it. A key question is: to what extent would GCC economies be affected by NEA unconventional gas development? GCC hydrocarbon exports would have to be modified to accommodate a change in customer demand. Demand would decrease and hydrocarbon price fluctuations would affect revenue streams as well as international trade partnerships. We attempt to answer these questions by developing an investment based methane hydrate model using metrics of oil & gas industry to understand the effect of such a change and its potential market penetration on the GCC region as a whole. Key-Words: Gas hydrates, North East Asia, Activity report, Trade partnerships, Investment modelling, Policy recommendations.