92WE HAVE A SERIOUS PROBLEMtoxic “sour” gas, laced with hydrogen sulfide. Production costs for these
“nonassociated” sources start at around $3 and range as high as $8 per
MMBtu.^17 Since gas produced is nearly always destined for the subsidized
domestic market, rather than the more lucrative export market, no one
wants to invest. There is simply no money in it. Fixed local prices are
below the cost of production.^18
Qatar is the exception. Qatar’s successful launch of LNG ship-
ments in 1996 has allowed the tiny monarchy to rise above the low- value
mindset of its region and trade with countries, particularly Japan and
South Korea, willing to pay market price. Timely investments that came
toward the end of the oil bust allowed Qatar to build its LNG infrastruc-
ture affordably, making its unit costs by far the world’s lowest. LNG
prices began rising in 2005, with Japanese import prices averaging
$13 per MMBtu in 2008 and nearly $17 in 2017. Qatar’s ability to meet
demand with its low- cost supply made the tiny monarchy incredibly
rich. For the rest of the Gulf, the big difference between oil and gas is
that gas has never been an important source of rents. The onset of short-
ages and gas imports has not destroyed their economies. But becoming
an oil importer easily could.
For regimes seeking legitimacy, distribution of energy products is also
a less flexible practice than distribution of energy rents. When energy
revenue is falling, rents can be generated from myriad nonhydrocarbon
sources. Dubai, now a fully non- oil economy, reaps rents from fees
charged to businesses and expatriate residents. Distribution of these fee-
based rents sustains the loyalty of Emirati citizens to Dubai’s ruling al-
Maktoum family.^19
By comparison, oil and gas resources are finite. Even if reserves remain
large in four of the six monarchies, it’s no easy matter to raise oil pro-
duction. Oil and gas extraction is subject to technical and economic
limits. Increasing output requires investments in the tens of billions
of dollars. No rational policy maker will spend that kind of money
only to hand over the yield to citizens— and smugglers— at prices below
the cost of production. Finally, energy subsidies also contaminate the
national economy. They increase its energy intensity and encourage
dependence by domestic industry in ways that make it uncompetitive.