13-01-04
It's 2020, and the energy ministers of the Organization of Gas-Exporting
Countries, known as OGEC, the umbrella for the dozen or so nations which
dominate the market, gather in Madrid for their annual get-together to determine
production quotas and price levels for the new primary energy source that fuels
the global economy, natural gas, or more specifically, LNG, known as LNG.
That scenario may seem somewhat fanciful right now, but the emergence of a
partner, possibly even a successor, to the Organization of Petroleum Exporting
Countries, OPEC, which has dominated the world’s energy market since the
1970s, is on the cards as the natural gas business, particularly the Gulf-based
LNG sector, is set to expand into a global boom with the US as the dominant
market.
The worldwide shift toward LNG will bring in its wake profound political and
economic changes in many parts of the world, providing a lifeline for the
economies of some Gulf states whose oil production is sliding into decline as
fields are exhausted.
"The international trade in gas delivered by pipeline and tanker, will
rival the scale and complexity of today's petroleum market," said Edmund
O'Sullivan, editor-in-chief of the Middle East Economic Digest. „The world gas
price will then become as important to Middle East economies as the world oil
price.”
“Logic suggests that exporters will want to coordinate strategies to prevent a
gas price collapse. Whisper it those who dare: an OPEC for gas may soon be on
the world energy agenda," he added.
In December, some of OPEC's most important member states shifted their
attention from crude oil to LNG exports at a conference convened by the
administration of the US President George W. Bush to boost US imports of the
refrigerated fuel.
The United States is without doubt the key market for LNG, currently accounting
for one-quarter of the natural gas consumed in the world every day. The
Americans are increasingly concerned about the security of their energy
supplies, and have long sought to undermine OPEC's influence in the oil market.
While OPEC largely controls global oil supplies and prices, the Bush
administration would like to see competition blossom among LNG exporters.
Non-OPEC producers like Russia, Norway, Trinidad, Australia and Oman, are
looking at LNG exports to generate new revenue.
"It's in our interest to develop as many international sources as
possible" for US imports of LNG, US Energy Secretary, Spencer Abraham, said
at the conference in Washington. "LNG is clearly going to be a large factor
in the world's future energy equation," he said.
The first commercial LNG project was launched in the mid-1960s, with modest
sales by Algeria to Britain and France. After the 1973 oil crisis, LNG got a
major boost, particularly from Japan, which wanted to drastically reduce its
dependence on Middle Eastern oil. In September, the US Department of Energy
predicted that LNG would account for 15 % of US gas consumption by 2025,
compared to 1 % in 2002.
US demand fornatural gas is projected to grow by 23 % over the same period, and
the forecasts for Europe and Asia are just as striking. Gas provides about
one-quarter of the total energy for the US economy. In Europe, the figure is 20
% and rising, mostly with gas piped from Russia, which has 30 % of the world's
known reserves and probably a lot more under the frozen and largely unexplored
north.
Qatar and Iran share another 25 % in the vast North Field/South Pars field in
the southern Gulf. Next comes Saudi Arabia and the United Arab Emirates with
sizeable reserves. For the UAE, with 212 tcf of gas, mostly in Abu Dhabi, the
gas fields will fill the economic gap left by the emirates' declining oil
fields.
Even Oman, whose modest oil production is also in the decline, has used LNG
exports, worth some $ 1.2 bn in 2002, to offset falling oil revenue. Daniel
Yergin, author of the definitive book on the oil business, The Prize: The Epic
Quest for Oil, Money and Power, published in 1991, calls the emerging LNG market
"The Next Prize."
In a recent article in Foreign Affairs, Yergin, chairman of the Cambridge
Energy Research Associates, a leading energy consultancy, and his colleague,
Michael Stoppard, the group's director of global LNG, argue that the natural gas
industry "will have a far-reaching impact on the world economy, bringing
new opportunities and risks, new interdependencies and geo-political
alignments”.
“Some analysts anticipate that the new interests and interdependencies brought
by the LNG trade, will bolster relations between producing and consuming
countries. Others, however, worry that it will only lead to dependence on
imports for yet another key commodity, which will create vulnerability to
deliberate machinations, political upheavals, or economic problems."
In a world as uncertain as the one we live in today, with the potential for
widespread political and economic upheaval in the Middle East, the Caucasus,
Central Asia, West Africa and Central America, established and emerging sources
of energy, such concerns carry some weight.
"One can well envision scenarios in which the future large LNG exports
could be subject to some kind of interruption, even if only short lived,"
Yergin and Stoppard said, adding that the "best response to such security
concerns is to develop the global LNG business and ensure that ample supplies
come from many countries. Encouraging LNG projects in various countries is a
safeguard against undue dependence on too few nations."
LNG is natural gas cooled down to -162 degrees Celsius, at which temperature
it contracts into a liquid, which can be carried in tankers and delivered around
the world, anywhere there are re-gasification terminals. These turn the liquid
back into gaseous form for industrial use, feeding it into pipelines for
distribution. Liquefication allows a vast amount of the gas to be transported in
a single cargo.
Methane, for instance, is 600 times less voluminous as a liquid than as a gas,
so one shipment by an ultra-large tanker is the equivalent of 5 % of the gas
consumed in the US on an average day. LNG and other gas-to-liquid (GTL) fuels,
transported by sea, allow producers to bypass the pipeline constraints that have
traditionally tied natural gas within regional markets and provide an immense
boost to globalise some of the trade in world gas production that currently
amounts to nearly 90 tcf a year.
Gas is an attractive alternative to oil or coal for another reason -- the
environment. Gas is the cleanest burning of the fossil fuels and is finding
increasing favour globally in the struggle against the harmful emissions of
greenhouse gases. Over the last 20 years, natural gas consumption has grown by
more than 50 % and is now the primary choice for power generation. More than
half of the power stations operating around the world are gas-fired.
The constantly rising demand for electricity around the world has spurred the
expansion of the LNG industry, especially in the United States. There, more than
200,000 MW of new generating capacity, a huge amount equivalent to one-quarter
of the entire US capacity in 2000, is being constructed or is scheduled to
become operational soon. It's the same elsewhere, with many large power projects
underway or planned in the Gulf region. Indonesia is now the world's biggest LNG
exporter, supplying some 30 mm tpy to major buyers that include Japan and South
Korea. But Qatar, which has by conservative estimate, gas reserves of 900 tcf,
the third largest after Russia and Iran, is planning to take the lead within the
next few years.
"The state of Qatar, which constructed its first gas liquefying plant in
1996, aimed for a production capacity of 60 mm tons of liquefied gas by the
start of the next decade," Energy Minister, Abdullah bin Hamad al-Attiyah
boasted in December. In October, the tiny emirate signed natural gas mega deals
with ExxonMobil and Shell worth $ 17 bn, including the supply of 15.6 mm tpy of
LNG to the US for 25 years from 2008-09.
On December 8, Attiyah signed a memorandum of understanding with another US
energy giant, ConocoPhillips, that involves the construction of a gas liquefying
plant with an initial production capacity of 80,000 bpd of fuel products such as
petroleum gas and naphtha, used as feedstock for the chemical industry.
Production capacity is slated to increase in the final phase of the $ 5 bn
project.
At the same time, state-run Qatar Petroleum, headed by al-Attiyah, and the
South African minerals and hydrocarbons group, Sasol initiated work on a $ 1 bn
GTL joint venture in the emirate. Qatar’s burgeoning gas industry centres on
two companies, QatarGas and Ras Laffan LNG, known as RasGas. QatarGas is set to
produce some 32 mm tpy of LNG by 2010.
Its operations, which involve ExxonMobil, ConocoPhillips and France's Total
among others, will ship products to Japan, Spain, Britain and the US. The
company is currently looking to Europe and the US for more deals.
RasGas is set to produce 36.6 mm tpy of LNG by the end of the decade. Qatar
Petroleum is the main owner, with ExxonMobil taking just under one-third of the
venture.
Its three projects will supply LNG to South Korea, Spain, Italy, India, Taiwan
and the United States. But Qatar's ambitious plans and those of other gas
producers to globalise the industry, will require huge investment, around $ 200
bn in the next decade, according to most estimates.
Much of this will involve the construction of many more regasification
terminals. Environmental groups have opposed plans for these because of the
potential for explosions, either accidental or the result of terrorist sabotage
in the plants themselves or the tankers that transport the LNG.
"A serious incident in the United States and the whole thing would shut
down," said Doug Rotenberg, British Petroleum's president for global LNG,
adding that "it would be devastating." There are only 40
regasification plants in the world, spread among 10 countries, with around 20 in
Japan and four in the US. Spain, strategically located relatively close to
natural gassources in the Gulf and North Africa, is one of the biggest LNG
buyers, 21 bn cm consumed in 2002 alone.
The gas comes from as far afield as Australia and Trinidad, but Algeria
supplies 60 %, followed by Nigeria, Norway and the Gulf states. Spain has four
terminals in operation, with two more in the works, the highest number of any
European country along with 4,000 km of gas pipeline criss-crossing the country.
No new terminals have been built in the US for two decades, but applications to
construct 30 more have been made. Whether these plants are built or not, will
have a critical impact on LNG's expansion. ExxonMobil has announced plans to
build a $ 600 mm plant on the Texas coast to take in Qatari LNG and wants to
build three more around the US. Shell and BP are among other companies driving
to build new terminals in California, Texas, Alabama, Florida, Mexico, Nova
Scotia and other locations.
Source: Vanguard