Oil & Gas will continue to constitute the world’s primary energy supply for the next 25 years, predicts a new report from Deloitte.

Oil is viewed as a global, unified measure of the economic recovery—and while economic indicators have been bearish of late, oil prices are still trending upward, according to Deloitte’s Oil & Gas Reality Check 2011.

The report, issued by Deloitte’s Global Energy & Resources group, analyses the oil and gas trends and issues for the year ahead—the future of deepwater drilling, where the next alternative energy source will be found, and the growing influence of Asia on the industry.

In terms of the Middle East, the report focuses on the irony facing many Gulf States: While they sit on top of some of the world’s most abundant natural gas reserves, they are struggling to find enough of this clean-burning resource to meet their growing electricity demand.

Together, the member nations of the Gulf Cooperation Council – Bahrain, Saudi Arabia, Kuwait, UAE, Qatar and Oman – hold about 23 per cent of the global gas reserves. However, with the exception of Qatar, the GCC states are facing increasing gas shortages, according to the report.

One factor is booming GDP growth. GCC economies are growing at a rate of about seven per cent a year, which is spurring demand for both gas and electricity.

Another factor is the strain of subsidies. Many Gulf states sell natural gas as well as electricity at highly subsidised rates. The UAE offers a case in point. As recently outlined by the Petroleum Economist, production costs of deep and mildly sour gas projects in the Gulf are between $5-6/m Btu, but domestic sales prices in the UAE range from $0.75-$2.00/m Btu.

In the short-term, low prices resulting from subsidies are encouraging producers both at home and in neighboUring countries to export their gas to Asia where it can command more than twice the price that it can within the Gulf region. This situation is creating immediate shortages, the only viable solution to which is costly liquefied natural gas imports from Europe. In the long-term the consequences could be even more severe.

The low-price environment is constraining upstream investment as producers increasingly find development of gas fields to be uneconomical. The reality is that today’s lack of infrastructure investment is likely to have supply repercussions for years to come.

“Although there is a high level of awareness among these countries as to the effects of subsidies, there is still a great amount of debate and uncertainty over how the issue should be tackled,” said Mutasem Dajani, oil and gas partner at Deloitte in the Middle East.-TradeArabia News Service