The Middle East's share of the global liquefied natural gas (LNG) export market will shrink by nearly a third between 2012 and 2020, due to rising domestic demand, energy consultancy Wood Mackenzie said.

Demand in the region is being driven by an insatiable appetite for power and desalination, said Rajnish Goswami, the consultancy's head of gas and power consulting in the Asia Pacific.

'The region is in the midst of a gas supply crisis,' Goswami told a conference on Tuesday. 'Between 2012-2020 the Middle East's share of the global LNG export market will fall from 35 per cent to 25 per cent.'

Gas demand in the short to medium term, particularly for the United Arab Emirates, Bahrain, Kuwait, Syria, Oman and Saudi Arabia, poses a challenge for governments.

Governments have to weigh up gains from exporting gas to more lucrative markets in the West and Asia versus selling them for much lower prices in domestic markets.

'It's a curious dichotomy. Domestic gas is being sold in some cases below the cost of supply, while exports achieve market rates,' Goswami said.

The UAE, which has just launched tenders for the estimated $10 billion Shah gas project that will supply local industries, could face a deficit in excess of 1 billion cubic feet per day (cfpd) of gas by 2020, Goswami said.

'Using the UAE as a specific example, Wood Mackenzie sees power and desalination to be the engine for future demand growth,' Goswami said.

The sector is expected to increase at a rate of over 6 per cent per annum, equivalent to 5 billion cfpd to 2020.

To mitigate the tight gas supply in the region, governments should look at establishing better prices for domestic gas sales, conserving energy use and evaluating alternative power solutions.

'With a policy framework which encourages investment, the challenges of meeting future demand can be successfully overcome,' Goswami said.-Reuters