IN FOCUS
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INTRODUCTION Welcome to Flame in Focus –
Flame in Focus will build on
a publication dedicated to the
this quality, timely content,
key trends in the global gas
made possible by our loyal
industry today. After a hugely
and growing gas community.
successful Flame 2016 in
If you would like to contribute
May, this magazine picks up
please do get in touch.
many of on the developments that were discussed in Amsterdam, plus new and emerging issues within the world of global gas as we look ahead to 2017. As ever, we will delve into the key issues, providing a host of differing ideas and expertise with the depth and breadth of industry knowledge that marks out Flame as a unique forum for the gas industry.
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Heidi Stancliffe & Kathryn Bond Co-Editors-in-Chief, Flame Conference
CONTENT Introduction
The LNG Industry | 10 Challenges Facing Liquid Natural Gas
Gas Pricing | Brexit: UK Gas Prices Hit by Weaker Pound, Higher Uncertainty and Quieter NBP
Gas Demand | Latest Forecasts from National Grid for UK Power Sector
Shape of the Market | Asian LNG Importers Are Enjoying a Buyers’ Market
Oil Price | An Interview with Stephen Larkin, CEO Africa New Energies
Timeline | Key Events in The History of Modern Natural Gas Business
The Future of Power | Is ‘Big Oil’ Morphing into ‘Big Gas’?
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1. In the short term: coping with supply and demand imbalance Global trade in LNG rose by 4.7 MT to reach 244.8MT in 2015 and supplies will rise over the next 4 years as the 140 MTPA of liquefaction capacity is currently under construction, last year’s start-ups in Australia and Indonesia and 620 MTPA of US capacity reach the market. Simultaneously, demand growth is slowing caused by economic weakness in China, recession in Brazil and increasing financial difficulties in emerging countries. Japan and South Korea, the world’s largest consumers of LNG, reduced their imports by 7 MT in 2015. Japanese demand is uncertain, depending on rate of nuclear restarts, energy efficiency measures and use of solar power, whilst South Korea expects 7-8 GW of new coal generation this year. The question facing the industry is “will demand in North East Asian recover?” 2. Low LNG prices The decline in oil prices and increased weakness in demand
THE LNG INDUSTRY
growth led to a fall in LNG prices from an average $15.60/MMBtu in 2014 to $9.77/MMBtu in 2015. Low
10 CHALLENGES FACING LIQUID NATURAL GAS
prices cause buyers to wait and see hoping for even lower prices before signing long term contracts, a gambit that threatens developer’s FID decisions for new large scale LNG projects whilst current suppliers face lower revenues for their noncontracted supplies. 3. Europe: The market of last resort Europe’s role as a key backstop for excess cargoes of LNG is likely to
BY NICHOLAS NEWMAN
increase as other consumers are unable to absorb new supplies and the policy requirement for energy security will probably envisage increased LNG imports for eastern and southern Europe. However, LNG
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suppliers face competition from
8. Educating customers
Gazprom, Europe’s main gas pipeline
Perhaps the greatest market
supplier.
challenge arises from overcoming the knowledge and expectations
4. The challenge of regional trade
gap between experienced project
Whilst LNG is traditionally seen as
developers and government
a global trade, small-scale regional
customers. Educating governments
trades are emerging. For example,
to enable them to make optimal
Alaskan LNG is destined for the
and timely decisions and create
Hawaiian Islands and there are plans
a business friendly financial,
for regional LNG and bunkering hubs
regulatory and legal environment is
to be based in Jamaica, Trinidad
a struggle.
Related US LNG growth will continue Keith Larson of Hogan Lovells on the outlook for US gas projects
CLICK TO WATCH
and Puerto Rica to serve both the Caribbean and Latin American
9. Contract issues
markets. Making small-scale trades
Differences or mismatches along
profitable could prove challenging.
a project’s value chain can bedevil projects. For instance, differing cost
5. Competition from fossil and
recovery systems complicate the
renewable energy
allocation of costs to infrastructure,
In many parts of the world the cost
the LNG liquefaction or regasification
of LNG is uncompetitive with coal.
plant and any separate pipeline
China and India are big consumers
project. Moreover, the extent to
of coal and this will not change any
which downstream infrastructure
time soon. Elsewhere, renewables
costs can be recovered through
are attracting substantial investment
upstream production is often an
and may limit LNG market
issue alongside differing timelines
opportunities.
for licensing, relinquishment and investment have to be worked
6. Money matters
through. These are just a few
For many of the newly proposed
examples of the many issues in
non-OECD LNG liquefaction projects,
contract design.
Biography
raising capital and securing long term buyers is the major challenge.
10. In the long term: climate change
Project developers need buyers’
and the effect of the COP21 Paris
contracts for most of their output
Agreement
in order to reach a final investment
If, when, and by how much,
decision
countries actually implement the commitments they made in Paris to
7. Controlling construction costs
reduce dependence on fossil fuels
An era of low LNG prices
creates long term market uncertainty
necessitates industry-wide cost
for an industry which, is itself
reduction and efficiencies. One
thinking 30 years ahead.
project, the Magnolia LNG Lake Charles, Louisiana, LNG export development has reduced costs from an average of $800-900 to just $500 per metric tonne of LNG production. Developers elsewhere need to follow suit.
Nicholas Newman is an Oxford based freelance energy journalist and copywriter who writes, researches, analyses and comments about the global energy business. Nicholas has authored numerous reports on shale gas and more recently on African gas to power prospects.
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GAS PRICING
BREXIT: UK GAS PRICES HIT BY WEAKER POUND, HIGHER UNCERTAINTY AND QUIETER NBP BY JEREMY BOWDEN
The UK’s decision to leave the EU
anticipated returns, although it would
traded for the first time last year,
has produced a number of early
also cut local costs. Some North Sea
although has dipped since. TTP
effects that could impact gas prices,
projects will get a boost from this fall
avoids exchange rate volatility issues
notably from exchange rate moves.
in UK costs, especially if their income
for continental traders, as well as
Sterling-quoted UK gas prices (along
is mostly in dollars from oil sales. For
uncertainty over possible divergence
with power prices) have already
example, Premier said development
in rules.
seen a number of increases as the
costs at its Catcher project have
pound has fallen against the dollar
fallen by US$100 million.
The uncertainty is related to whether
and Euro, although these have been
any agreement to leave will be
moderated a little along the forward
aimed at maintaining maximum
curve due to weaker anticipated
cooperation and policy alignment
demand (also related to Brexit).
with EU energy and climate policy,
“The value of the pound definitely has an impact on the wholesale market as the pound is a major factor in gas we’re importing.” said Tom Edwards, Energy Analyst at Cornwall Energy. A rise in gas prices could hit
This uncertainty over policy has left investors in limbo.
or not. There had been concern that the UK might diverge from EU environmental policy post-Brexit, but that was laid to rest after Amber Rudd announced emissions targets tighter than those of the EU on June 29th.
demand, but the fall in the pound also makes power imports more
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Post-Brexit options include the half-
expensive, so any consequent cut in
There are also a number of
way house of the European Economic
power imports could mean higher
uncertainties that arise as a result
Area (EEA) – the Norwegian model.
gas burn in the UK, balancing out the
of Brexit related to gas and power
This would involve more or less
downside.
market operation, interconnector
automatic acceptance of all the
trade, and clean energy policies, that
energy rules decided in Brussels.
Longer term, companies that sell
may impact prices on either side
Another alternative is the Swiss
into the domestic gas market may
of the Channel. This uncertainty
model, which would exempt the UK
be less able to fund investment in
could mean the NBP loses out to
from EU competition law and state
the North Sea, shale acreage or the
gas trading at the Netherlands
aid rules, leaving the UK free to
power sector, unless local prices rise.
TTP, as European producers and
expand capacity market or nuclear
For example, French giants, Total
transmission system operators
subsidies. There are also the goods-
and GdF have a significant presence
seek to avoid risks associated with
focused Turkish Customs Union
in the UK’s onshore shale sector,
pricing against NBP post-Brexit.
and yet-to-be approved Canadian
where a lower pound may reduce
TTP outpaced the NBP by volume
Comprehensive Economic and Trade
Related Agreement (CETA) – which, once
of lower economic growth and the
Europe’s gas market flexibility
approved, will remove 98% of the
possible further break-up of the EU
gives it price competitiveness
tariffs between Canada and the EU.
or UK, which could hit demand and
Klaus Schäfer, CEO of Uniper,
Or the UK could manage to negotiate
investment, both up and downstream
a unique arrangement unlike any of
– although at this stage it is unclear
the above.
Brexit will lead to this.
This uncertainty over policy has
* www.vivideconomics.com/ publications/the-impact-of-brexiton-the-uk-energy-sector
left investors in limbo. In March
discusses the future of the European gas market.
2016, Vivid Economics* looked at potential impacts beyond departure from the Internal Energy Market. It found that the increase in the cost
CLICK TO WATCH
of investment due to the uncertainty arising from Brexit negotiations could be a significant cost, given that the UK is undertaking a historic
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level of investment in energy infrastructure – not least more gasfired generation capacity. “From an investor’s perspective, higher returns are required to compensate them for the risk of less favourable post-Brexit arrangements. This puts upwards pressure on the cost of financing, raising the cost of investment in the UK energy sector,” it said. Any cut in gas-fired capacity expansion could reduce demand for gas, putting downward pressure on local prices. Looking more widely, other negative gas market sentiment could come from fears
Jeremy Bowden currently works as a freelance journalist and energy analyst. His experience spans over twenty years in the energy, specialist energy media and utility sectors in a variety of positions in both Europe and Asia, including five years at IHS in Singapore as Midstream Manager for the Asian region, followed by a short spell as IHS-CERA Associate Director, Emerging Markets.
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GAS DEMAND
LATEST FORECASTS FROM NATIONAL GRID FOR UK POWER SECTOR The UK’s National Grid released its latest annual Future Energy Scenario (FES) on July 5th. Jeremy Bowden takes a closer look at some of its predictions related to gas imports. What could the impact of Brexit be on UK gas imports? The UK may have to import 93 per cent of its gas by 2040 if Brexit results in weak economic growth and a shortfall in domestic gas investment, as some analysts are predicting. Britain currently imports about half of its gas, but this figure is expected to rise over the next few years as North Sea output rises following heavy investment in 2012-2015. The forecast comes under our National Grid “Slow Progression” scenario, one of four potential outcomes detailed in our annual outlook. Under our “Gone Green” scenario – where policies and investments in the power sector are tailored towards long-term environmental goals – gas imports are expected to rise to 90 per cent of supply by 2040. Alternatively, under our business as usual, “No progression” scenario
imports would rise to 75%, and a further 7GW of new large-scale combined cycle gas turbines (CCGTs) would be needed to maintain security of supply by 2022. The required levels of new CCGTs will mean the network should be prepared for a potential dash for gas. Are there any scenarios in which gas import demand falls? Yes, in our fourth scenario, dubbed “Consumer Power”, there would be a reduction in gas imports to 30 per cent by 2040. Under this scenario, government policies would focus on improving the availability of domestic supplies and easing the path for unconventional methods of gas extraction such as shale. This means that, under this scenario, shale gas production in the country could begin in 2021, and provide as much as 32 billion cubic meters a year of gas by 2031. In contrast, under our “Gone Green” scenario government policy fails to build on the country’s shale potential, and no shale gas is extracted by 2040. In reality it is likely to be somewhere in between. Do the National Grid forecasts assume the government will meet its environmental commitments? Yes, but not all of them. Under all scenarios we expect the government to stick to its pledge to close coal-fired gas power stations by 2025, unless they are fitted with technology to capture and store emissions. However, only the “Gone Green” scenario is based on the government meeting its legally binding target to reduce emissions by 80 per cent by 2050 compared with 1990 levels. Under each of the scenarios, including “Gone Green” the country
will miss its 2020 target to meet 15 per cent of energy demand from renewable sources. This is based on the Britain’s former Secretary of State for Energy and Climate Change, Amber Rudd, statement last year that it was unlikely the country would meet the 15 per cent 2020 target due to a lack of progress in the heat and transport sectors. We (National Grid) also anticipate a large rise in electricity storage technology over the next few decades, which could see capacity rise to approximately 18GW by 2040 in an optimum-case scenario. This would allow up to 89GW of distributed generation – capacity not connected to the main transmission network – which would contribute 49 percent of total generation capacity from solar generation and storage, and some wind generation. Which scenario is likely to play out in the end? The actual outcome is expected to be somewhere between the four scenarios. So far, although the UK government has recognised the importance of new gas-fired plant replacing old coal-fired plants over the next decade, capacity market auctions held to date have secured just one new 2GW CCGT before 2020. This would certainly see the initial UK trajectory at the bottom end of our potential gas demand growth forecast, although if another 10GW of proposed new gas-fired capacity then comes on-stream before 2022 (as earlier planned), then this would be pushed back up. The outcome will very much depend on the direction of new government policy and the result of Brexit negotiations. www2.nationalgrid.com/uk/ industry-information/future-of energy/future-energy-scenarios
Related
CLICK TO WATCH
The changing face of EU & Russian gas Discussing the huge disruption in the gas, oil, coal and LNG industries, Vladimir Debentsov, Head of Russia & CIS Economics, BP talks to Sasha Twining, Flame Correspondent, about Russia and Gazprom’s future landscape.
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The Tariff Network code today Tom Maes, Vice-Chairman, Gas Working Group, CEER talks to Sasha Twining, Flame Conference Correspondent about how the dramatic changes in the industry have influenced the Tariff Network Code.
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In July 2016, the first US consignment of Liquefied Natural Gas (LNG) headed from Cheniere Energy’s Sabine Pass terminal in Louisiana to East Asia, the industry’s most lucrative market and one that imports the commodity more than any other region. Furthermore, Sabine Pass terminal has also dispatched cargoes to Kuwait, United Arab Emirates and India, expanding its emerging markets reach. It was almost inevitable that proceeds of the US shale gas bonanza would find their way to Asia, with Europe and Latin America already benefiting since February. Behind the historic moves, it is the buyers and not the sellers who are calling the shots these days. Spot market prices have plummeted to as low as $6.25/mmBtu in Japan at the time of writing; a third of the price level recorded in July 2012, according to Platts. Over the past year alone, natural gas prices are down 30.5% on an annualised basis
SHAPE OF THE MARKET
and arbitrage between gas prices in the Pacific Basin and the Atlantic Basin has narrowed from around
ASIAN LNG IMPORTERS ARE ENJOYING A BUYERS’ MARKET BY GAURAV SHARMA
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$5.50 in 2014 to about 65 cents.
The Fukushima switch-off sent Japanese utilities into the LNG market in panic buying mode, evoking emergency clauses to ensure the lights were kept on, often at a premium.
The reason is intense competition
“Japanese [and South Korean] buyers
between traditional gas exporters, led
are not aiming at eradicate the JCC.
by Qatar, Australia and Russia, and
They want to achieve a balance
upcoming ones, i.e. the US, which has
between the two. I’d say that would
tilted the market in buyers’ favour.
be around 60/40 - JCC/Henry Hub for
Most long-term contracts around
Japanese importers and some say
the time of the Fukushima tragedy
50/50 for their Korean counterparts,”
and nuclear power switch-off in
Hung adds.
Related The bleak picture of the global gas industry
2011 were linked to the JCC Index, or Japan Customs-cleared Crude.
At a pan-global level Qatargas, the
Often nick-named the ‘Japanese
world’s leading natural gas exporter,
Crude cocktail’, it made gas prices
seems amenable to the new realities
in Japan, and by extension in South
of the market, and even Russia’s
Korea and Taiwan, pricier and kept
Gazprom is ditching its traditional
the tradition connection with oil
insistence on linking natural gas
prices going.
contracts to oil prices.
However, an abundance of gas with
Europe is reaping reward too, says
Australia and US alone tipped to
Stephen Trauber, Citigroup’s global
add 60 million tonnes of natural gas
head of energy. “Qatari and US gas
per annum, and around 50 new LNG
exports will not replace Russian
projects in the pipeline, not only
exports to Europe in meaningful
are we witnessing a buyers’ market
volumes any time soon. But
but gas contracts are also being
increased competition would lead
universally redrawn.
to better European pricing over the
Anne Hung, a Tokyo-based partner
medium-term as sellers move in to
at international law firm Baker &
seal supply contracts and buyers
McKenzie, says the Fukushima
seek security of supply.”
CLICK TO WATCH
Biography
switch-off sent Japanese utilities into the LNG market in panic buying
Competition within the LNG market
mode, evoking emergency clauses to
is only going to intensify. As Sabine
Gaurav Sharma is a London,
ensure the lights were kept on, often
Pass terminal moves on from being
UK-based energy market analyst
at a premium.
a flag bearer of the new age US gas exports to one of the many terminals
“These days, traditional buyers are
expected to come onstream, the
and news editor. At present, he writes regularly for Forbes and International Business
looking for ways to offload their
Energy Information Administration
Times, alongside his industry
overcommitted LNG, with a diversion
expects US LNG production capacity
blog ‘Oilholics Synonymous’.
clause being a standard feature
to expand to 9.2bcf/day by 2020.
Gaurav is also a regular and
in natural gas supply contracts.
lively commentator on oil and
Furthermore, we are also seeing
Such levels would make the US the
gas markets at industry forums,
more short-term contracts. I can
world’s third-largest LNG producer
academic events, trading portals,
safely say Japan and the Far East
after Australia and Qatar. All the
OPEC conference streams, and
now resembles a buyers’ market.”
while, Australia is gearing up to
for various broadcasting outlets
overtake Qatar by tripling its LNG
including CNBC, BBC Radio
Japanese, and by extension other
production capacity. A shake-up
and TipTV. While the oil and
Asian buyers, are asserting their
in the exporters’ pecking order will
gas futures market remains
dominance, but the regional
most likely delight importers seeking
connection between gas pricing and the JCC benchmark is not going to go away any time soon.
even better terms.
Gaurav’s core area of expertise, he has also extensively covered energy project finance, emerging industry technologies and process efficiencies in the past.
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OIL PRICE
OIL PRICE INTERVIEW WITH STEPHEN LARKIN, CEO AFRICA NEW ENERGIES BY NICHOLAS NEWMAN
South African born Stephen Larkin,
Supply Drivers
replacing diesel in South African
is CEO of Africa New Energies, a
Larkin asserts that the largely
mines, and on rail networks across
small but highly innovative oil and
unexpected and dramatic increase
Europe and he expects that in the
gas exploration company focused
in US oil production (it doubled in
next ten years hybrid and electric
on Namibia. With two oil and gas
eight years), as well as the planned
cars will further reduce demand
blocks, extending over an area of
increases in production of newer
for oil within the transport sector.
5 million acres (the size of Wales),
oil producers such as Angola and
In addition, the traditional link
the company is employing the
the recovery of Iraqi supplies are
between increasing oil demand
very latest proprietary sensing
largely responsible for the current
and GDP growth seems to have
technology in its quest for new oil
supply glut. Despite the on- going
been broken, as many countries
and gas. It also plans to supply gas
civil war, Iraq has steadily expanded
have adopted progressively more
to the nearby power grid to boost
oil production and with recent
rigorous fuel-efficiency measures
electricity supplies in this energy-
discoveries in Kurdistan claims to
and begun the switch from oil to
hungry but underpopulated country.
have 40% more oil reserves than
natural gas and to renewables.
The oil price has fallen from $110
previously thought. The wild card
Indeed, the availability of gas and its
in June 2014 to under $40 in Spring
is Iran which, since the ending of
uncoupling from the oil price, has
2016, recovering to $52 in June
sanctions, is seeking to double its
underpinned a shift towards gas for
before retreating to $43 a barrel
production, a goal which Larkin
power generation at the expense
currently. Asked about the prospects
believes is achievable, since
of oil especially in the USA, Mexico
for oil prices, Larkin maintains that
drilling for oil in Iran is much
and Hawaii. He notes the change
you have to look at long run trends
more productive than in Texas. He
of seasonal demand patterns in
rather than short-term oscillations.
maintains that it is much easier to
the oil prices in America. In the
For example, the average price of a
drill a 60,000 barrel a day new well in
past, the US oil price would spike in
barrel of oil between 1861 and 2014
Iran, when compared to Texas, where
winter, due to demand for heating
was $33 rising to an average $55
a typical well will average a few
oil on the East Coast, while summer
between 1973 and 2014. Therefore,
hundred barrels. Not surprisingly, the
demand for oil has increased every
historically, a $100 a barrel is a rare
prospect of rising Iranian oil exports
summer since 9/11 as Americans
occurrence. Larkin agrees with the
is influencing price expectations.
have returned to the road to reach
prevailing view that the oil price, just
their holiday resorts rather than
like other commodities, is largely
Demand Drivers
flying in what is now termed “the
determined by supply and demand
Larkin points to the slowdown of
American Driving Season�. This
and inventory levels.
demand in Europe, the US and China
trend is further intensified as the
and the substitution of electricity
Northern-hemisphere increase in
for oil in many industrial tasks. For
summer demand, caused by the
example, electricity is gradually
adoption of air-conditioning has
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Related been accompanied by increases in
Oil: How low can it go?
emergency power supplied by stand-
The experts at Flame Conference
by oil fuelled generators particularly
2016 reveal the industry’s inner-
in cities, such as Lagos and Nairobi,
most beliefs and forecasting for
along with dramatic increases in
the oil market.
demand from emergency diesel based electricity suppliers such as Aggreko. Unlikely to see a return to $100 per barrel soon! Larkin maintains that it is unrealistic to expect a return to oil at $100 plus
CLICK TO WATCH
a barrel any time soon. In fact, he expects a further fall in oil prices
US shale and the oil market
over the next six to nine months,
Aaron Gill, Vice President of
testing the $25 per barrel floor. He
Maritime Sales, Genscape
maintains that to survive in an era
discusses the future of US shale
of low oil prices, companies must
and the oil market in light of the
be able to make a profit when oil is
current landscape.
priced at just $40 a barrel. It is not surprising therefore that the high cost wells in the North Sea are in trouble and expensive-to-exploit projects, in the Arctic and Brazil’s Dos Santos Basin, are being put on hold. CLICK TO WATCH
13
KEY EVENTS IN THE HISTORY OF MODERN NATURAL GAS BUSINESS BY GAURAV SHARMA
1785 UK becomes the first country to
1960
commercialise the
Organization of
1964
Petroleum Exporting
Colony shale project
Countries founded in
begins in Colorado,
Baghdad by major oil
US to probe shale
and gas producers Saudi
rock (shut by Exxon
Arabia, Venezuela,
in 1982).
1950
use of natural gas for street lighting in London.
1800
Kuwait, Iraq, and Iran.
1978 1816 Manufacturing for by the Gas Light
Natural Gas Policy
OPEC countries begin
the US providing
Act passed in
nationalising oil and
1821
industrial use started
1971
incentives for
gas assets.
certain types
First commercial
Company of
of gas deemed
natural gas
Baltimore, US.
to be high cost
production and
including ‘Tight
1979
usage takes place in Fredonia, New
Gas’.
First major coal bed methane
York, US when
drilling is started by Amoco
William Aaron Hart
1981
in San Juan Basin, US.
drills well to 27
George Mitchell
feet and pipes gas
begins quest for
via hollow logs to
commercially
adjacent houses.
viable shale gas
1984
1850
1900
extraction at the
Qatargas, currently
Barnett Shale
the world’s largest
in Fort Worth,
LNG exporter,
Texas, US.
founded in Doha, Qatar.
1859 Edwin Drake achieves natural gas drilling depth of 69 feet in
1885
Titusville, Pennsylvania, US.
Robert Bunsen invents burner for natural gas to be safely used for cooking and heating, subsequently named the Bunsen burner.
14
1989 Russia’s natural gas behemoth Gazprom founded in Moscow.
2016 US exports first ever LNG consignment from its lower
2003 Sour gas blow-out
2000
48 states, dispatched by Cheniere Energy from Sabine
in Chongqing,
2005
SouthWestern
NYMEX natural
country is expected to join
China kills 234
gas contract hits
Qatar and Australia among
people marking
a record high of
the top three global LNG
the industry’s
$15.65/mmbtu in
exporters by 2020.
biggest tragedy.
the US.
Pass terminal in Texas. The
2015 Royal Dutch Shell announces
1997
agreement to acquire BG
2007
Group for $52bn; deemed a
Gas Exporting Countries
major play on the future of
George Mitchell
Forum – a group of
natural gas.
unveils
producers led by Russia
commercially
convenes in Qatar with
viable hydraulic
plans to ‘strengthen ties
fracturing or
towards cooperation and
‘fracking’ process
stability in natural gas
for the extraction
markets.’
2012 Packers Plus reports completing a well in the US Marcellus Shale with 60
of US shale gas,
fracking stages along a 3600’
a move that
lateral; a new technological
transforms the industry stateside.
breakthrough.
2009 Dispute between Russia
1991
and Ukraine halts gas
2012
exports via pipelines
North American natural gas
Soviet Union
through the latter.
prices fall below $2/mmbtu
collapses; state-
to the lowest level since 2002
backed Gazprom
driven by rising shale gas
and Rosneft emerge
production.
as dominant
2011
Russian energy
US Energy Information
companies in
Administration estimates
2012
subsequent years.
growth in the country’s
UK removes ban on hydraulic
gas production of 6% or
fracturing, imposed after an
66.2bcf per day; breaking a
earlier fracking experiment
previous record dating back
was thought to have caused
to 1973.
a minor earthquake in Northwest England.
1989 Australia’s North West Shelf LNG Venture begins shipping cargoes. It now produces up to 16.3m tonnes per annum of LNG.
2011 Chevron approves $29bn Wheatstone LNG project in Western Australia, cementing Australia’s rise as the world’s second-largest natural gas exporter.
15
Royal Dutch Shell’s $52bn takeover of BG Group in 2015, recently cleared by regulators and approved by both sets of shareholders, certainly impressed Wall Street and the City of London with its mammoth deal valuation in troubling times for the oil and gas sector. Consolidation within the industry is inevitable, but for energy sector purists the Anglo-Dutch oil giant has literally taken a ‘BG Group sized’ gamble on the natural gas market in buying and delisting its fellow FTSE 100 rival. It is not that Shell lacks pedigree in the natural gas business. Rather, the incorporation of BG Group’s signature gas plays from Australia to Egypt, US to Kazakhstan, into its corporate fold would mean that over 50% of Shell’s energy generation portfolio would come from gas and not oil within a matter of two to three years, if not sooner. Speaking in Houston, Texas earlier this year, Shell’s Chief Executive Ben
FUTURE OF GAS/POWER
IS ‘BIG OIL’ MORPHING TO ‘BIG GAS’?
van Beurden admitted just as much:
We’re more a gas company than an oil company now. If you have to place bets, which we have to, I’d rather place them there
BY GAURAV SHARMA While the exact percentages are not yet known, by some industry projections Shell is likely to end up with 22-25% of the global LNG market by 2017-18. If the projections are reflected in actual data, the said
16
market share would be more than
Among big IOCs, BP remains the
double that of the International Oil
only exception where the company’s
Company (IOC) that is next in line –
exposure to natural gas is not higher
Maria Moraeus Hanssen, CEO
ExxonMobil.
than it was a decade ago. Even in its
of E&P, argues that oil and gas
Related Is oil and gas restructuring?
case, natural gas as a share of BP’s
companies will use their M&A
However, if turning in a return
energy generation mix is largely
dollars for strategic purposes,
on investment is the name of the
stable at around 40%.
like switching to renewables.
game, then such a massive gamble on natural gas can be described as
The state of play seemingly banks
puzzling at best. Liquefied Natural
on natural gas’ credentials as a
Gas (LNG) delivery prices to East
low-carbon alternative to coal, and a
Asia, hitherto the most lucrative
bridge between global transition over
market, are down 30.5% on an
the medium term from coal-fired
annualised basis at the time of
power generation to a renewable
writing.
energy-led future.
In some ways, Shell’s signature move
That changeover is likely to take
with BG Group appears as unique as
several decades, and ‘Big Oil’ is
ConocoPhillips’ decision to spin off
hoping ‘Big Gas’ will help bolster
its refining and marketing assets
corporate bottom lines in the interim,
into a separate market-listed entity
even if it does not become the
in the shape on Phillips 66 in May
revenue mainstay. By that argument,
2012. The market was similarly abuzz
Shell’s move for BG Group deserves
with commentators wondering at
its place in the natural gas history
the time whether other integrated oil
books.
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and gas companies would go down a similar path.
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Yet, rather than being a harbinger of things to come, Philips 66 turned out to be a one-off. Big question is will the market see more consolidation via natural gas-slanted mergers and acquisitions in an era where oil and gas prices are likely to stay lower for longer. The evidence remains mixed, but all the while natural gas is unquestionably accounting for a larger share of the energy generation portfolio of the majors. An aggregation of Bloomberg, Reuters and company financial data increasingly points to the likes of Chevron, Total, ConocoPhillips and Eni, joining Shell in increasing the share of natural gas in their energy mix.
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#FlameConf 18