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Big Oil Bangs the Drum for Natural Gas
Oil prices may have stormed back into the headlines by crossing the ominous $100 a barrel threshold in recent weeks. But while this has happening the world’s largest oil and gas companies have been banging the drum for an altogether less newsworthy fuel–natural gas.
ExxonMobil, Royal Dutch Shell and now BG Group have been arguing that significant changes are afoot in the unglamorous world of natural gas that could have a big impact on patterns of energy consumption, carbon dioxide emissions and the balance of power in volatile energy markets.
The big driver of this shift is supply. Energy companies have done a remarkable job in recent years of finding vast quantities of natural gas, possibly adding more than a hundred years of supply of the fuel.
A boom in production of natural gas trapped in shale rock has already transformed the fortunes of the U.S. Just a few years ago, North America was grimly looking at the prospect of growing dependence on foreign gas. Now it’s sitting on so much of the stuff that people are seriously discussing export projects.
In other parts of the world, notably Australia and southeast Africa, new projects are starting and new discoveries being made that will be feeding growing Asian markets by the middle of this decade.
There is disagreement over the impact this will have. The International Energy Agency, which represents the interests of major energy consumers, says there will be a global gas glut lasting until 2020, leading to low prices for much of the decade.
But (not surprisingly) Shell, ExxonMobil and BG Group, all big producers of natural gas, disagree. Rather than swamping the market, they say the extra supply will stimulate greater use of gas either because it is cheaper, more secure or less carbon intensive than other energy sources.
Shell is the biggest promoter of the green credentials of natural gas.
“The quickest and cheapest way to cut CO2 emissions from the global power sector is to grow the presence of natural gas,” said Shell’s exploration chief Malcolm Brinded in a speech late last year. This is because natural gas produces less than half the emissions of coal for the electricity generated.
Brinded added: “Natural gas capacity is also considerably faster and cheaper to install than other new build sources of electricity.”
Shell has argued that the European Union could save half a trillion Euros while still meeting its ambitious target to cut CO2 emissions by 80% by 2050, if only it switched from promoting renewables and nuclear and instead focused on swapping coal for gas.
The sudden abundance of natural gas has also caused a substantial shift in its reputation as a reliable fuel source. Just a few years ago, many governments perceived natural gas as the weapon Russia would use to take over the world. The boom in gas production in a stable, friendly country like the U.S., and the hope it could be repeated elsewhere, has lessened those fears.
In its 2030 energy forecast last month, ExxonMobil predicted a shift toward natural gas by businesses and governments precisely because it is so reliable and affordable.
BG Group, in its long-term strategy update Tuesday, was particularly bullish, predicting gas demand will grow 3% a year between now and 2020.
“The increase in demand by 2020 will be equivalent to more or less the entire current North American gas market,” said BG Chief Executive Frank Chapman. Once you take into account the need to offset the natural decline in production from existing resources, more than two North America’s worth of new gas supply will be needed to meet this demand, he said.
A big part of this growth in natural gas demand could come at the expense of oil, Chapman said. As emerging economies develop, they will stop using expensive, dirty oil to fuel their homes and businesses and substitute it for cheaper natural gas. BG Group estimates that between 2010 and 2020, natural gas consumption could expand by up to 260 billion cubic meters a year at the expense of oil.
A switch of this magnitude could shave 4.4 million barrels a day off projected oil demand growth over the next ten years. To put this into perspective, BP recently estimated that total global liquids demand–oil, biofuels, natural gas liquids–will grow by 16.5 million barrels over the next 20 years. So a shift of this magnitude would surely affect the price of oil.
Unsurprisingly, Chapman saw all this as an opportunity rather than a problem. He reckons $2 trillion of new investment will be needed over the next nine years to meet these forecasts. Who wouldn’t want a piece of that action?