Survey of Energy Resources 2007
Assets for Future Gas Market Growth
Less-energy-intensive economies, stringent pressures to reduce the environmental impact of fossil fuels, and political and fiscal measures to increase the share of renewable energy in the global energy mix, have gradually combined to alter the growth prospects of each of the primary energies, and, consequently, their respective weight in the energy balance. Although natural gas is a flexible energy, ideally adapted to a number of uses, these ongoing developments are undoubtedly influencing its future growth potential, particularly in the OECD countries.
Nevertheless, while recent years have seen a globally downward revision of growth prospects for energy demand, natural gas is still the fossil fuel with the strongest potential. Several factors underlie a presumption of steady growth in gas demand of the order of 2% p.a. on average between now and 2020. With anticipated consumption of about 3 850 bcm by then, natural gas would accordingly account for about a quarter of world primary energy demand.
A significant growth potential. Non-OECD countries certainly harbour the largest potential for growth. Driven by steady population growth and strong economic activity, total energy needs should climb at quite a smart pace, providing natural gas with new opportunities for market development. The fast-growing economies in Asia (including China and India), the Middle East, Africa and even Latin America, promise gas demand growth rates of 3-4% p.a. by 2020.
The industrial and power generation sectors will be the powerhouse for future gas requirements. In some Asian countries, proactive government policies have fostered significant structural shifts in primary energy supply for power generation, the share of natural gas being boosted to reduce dependence on imported furnace oil, as in Pakistan. Also in Asia (India, Indonesia), fertiliser production (urea, ammonia) will also require growing volumes of natural gas, both as fuel and as raw material. In the Middle East, gas will be increasingly used in seawater desalination plants and in industry in general. In Africa, besides a growing requirement from the power sector, gas network extensions open up broader country-wide developments, such as in Algeria and Egypt. In Latin America, with the exception of Argentina, gas market developments are recent, indicating that gas still has significant potential for growth (Brazil, Chile, Peru).
In the OECD countries of North America and Europe, where the gas share is 24-25% already, this source of energy should continue to grow, albeit at rather moderate annual rates of 1.6% and 2% respectively.
In the United States and Europe, high gas prices have already significantly impacted on demand. In the United States, they prompted the largest industrial users to turn to alternative energies, as in the past, when they chose natural gas because it was a cheaper source of energy. In Europe, high gas prices have started to stimulate competition between the different sources of energy. In the power sector, where substitution of one energy by another can be fairly rapid, power producers, in the United Kingdom for instance, have recently favoured coal, an abundant resource which, despite recent price increases, still remains cheaper at the plant gate than natural gas, whose price is often indexed to oil products.
From a sectoral standpoint, the power sector should further consolidate its position, absorbing about 37% of marketed gas each year by 2020. While industry should maintain its current 25% share, the residential and tertiary sectors are likely to decline in importance.
A more environmentally-friendly energy. In the world energy mix, natural gas is undeniably the fossil energy whose combustion has the lowest environmental impact. Although its contribution to greenhouse gas emissions (CO2 in particular) cannot be discounted, it definitely plays a minor role in the emission of pollutants: about 30% less than oil products and 50% less than coal. In a context of increasingly stringent political and fiscal measures over the course of time, in order to reduce the negative environmental impact of the energy industries, the growing use of natural gas can only favour the fulfilment of Kyoto commitments.
Immense untapped potential. Estimates of the volume of gas remaining to be found have been consistently and significantly underestimated. Moreover, gas exploration still stands at a significantly lower degree of maturity than oil.
The abundance of gas reserves already discovered, and the prospects for a large yet-to-find potential, give natural gas a lifetime probably in excess of 130 years, at the current rate of consumption (2 930 bcm in 2006). Because interest in natural gas was very late in developing, many territories have been only partially explored, if at all. As the recent period suggests, specifically gas-targeted exploration most often yields very prolific discoveries, as witnessed in Bolivia and Egypt. Additionally, improvements in transportation economics are gradually providing access to a potential of 'stranded' gas, remote from consuming zones, onshore and offshore, currently estimated at 30-35 tcm, making it marketable at a competitive price. New frontier areas for exploration are also opening up, in deeper and more complex horizons, fold-belt provinces and deep sedimentary basins, technology permitting. The Arctic basins in particular present very high potential for hydrocarbons, especially gas. While exploration in fold belts has hitherto focussed on the shallowest objectives, deep exploration has been little undertaken, leaving hopes of future major gas discoveries. Accordingly, additional gas resources of 170-220 tcm, representing at least as much as current proven reserves, are probably still classed as unproven or yet-to-find.
Furthermore, conventional gas resources must be augmented by the large potential of unconventional gas. Coal-bed methane (CBM) resources represent an additional volume estimated at 100 to 250 tcm. Gas shales and tight gas sands resources also harbour very high and still largely unidentified potential. The industry has mastered the recovery of coal-bed methane and gas from tight sands or shales. In the United States for instance, CBM and tight gas production currently account for about 30% of total gas produced every year. Although no technique to develop and produce hydrate potential (20 000 to 25 000 tcm offshore?) has been tested on an industrial scale, hydrates are also often touted as a valid alternative, offering a cleaner energy source than hydrocarbons.
Technologies open up supply routes. The distribution of gas reserves is far from in harmony with the size and growth of the markets. Although recent gas discoveries are strewn just about everywhere, affecting all continents and prompting reassessments of reserves in almost all regions, the Former Soviet Union and the Middle East together still possess 73% of proven reserves, including most of the largest fields. As for the OECD countries, they have no more than 10% of gas reserves, while they consume about 50% of the volume produced worldwide every year. This creates growing regional imbalances between production and demand, at the continental level, and even more so, at the country level.
The steadily increasing length of haul between the world's gas-rich regions and consumer zones accordingly foreshadows a powerful expansion in international trade, at an annual rate of about 3.5%, to 1 430 bcm by 2020. Flows could then account for about 35-37% of marketed production.
Gas technologies consequently represent a key element in the commercialisation of natural gas. Several options, either traditional (LNG, pipeline) or emerging (Gas to Liquids [GTL], Compressed Natural Gas [CNG], Gas to Wire [GTW] etc.) can be considered. However, the most suitable export route has to be selected by considering issues such as the comparative economics (field output target, distance to consumer, etc.) and the end-user markets.
Pipeline flows (Fig 5-2 ) dominate international gas trade. Because pipeline technology has been relatively more straightforward, easier and more economic to develop, both onshore and offshore - even over long distances - pipeline deliveries between countries and nearby continents have largely dominated international gas trade. Currently 76% of international flows are in gaseous form by pipelines. However, the bulk (about 70%) of the 675 bcm is transported by international pipelines in North America and in Europe. While a densely interconnected network progressively helped to integrate Canadian, American and Mexican supplies in the vast American market, the construction of trans-European networks gathered speed between 1970 and 1990, following the first oil shock. These pipelines laid the foundations for an extensive interconnected network stretching over more than a million kilometres across Europe, from Siberia to Ireland, from Norway to Spain, from Algeria to Portugal and Central Europe.
With its 45% dependence on external suppliers, Europe currently has an annual pipeline import capacity of about 360 bcm, including 100 bcm from Norway, 200 bcm from Russia, 40 bcm from Algeria, and about 8 bcm each from Libya and Iran.
With the exception of Latin America, where regionally-traded volumes amount to about 17 bcm/yr, the development of intra- and inter-regional networks in other parts of the world is still rather limited. In Asia, the installation of an intra-regional transport network is relatively recent, restricted to Singapore's import of gas from Malaysia and Indonesia, and the supply of 9 bcm/yr produced from the Yadana and Yetagun offshore Myanmar fields and transported to Thailand. In the Middle East, gas flows have been confirmed to within the United Arab Emirates.
Although the rebalancing of natural gas markets via gas pipelines could increasingly face limitations - owing to technical, economic and even political reasons in relation to transit issues, a number of new long-distance pipelines are on the drawing board in all regions. Europe hosts the largest number of projects, with large-capacity pipelines (20 bcm/yr or more) aimed at exporting Russian gas to Northern Europe (NordStream via the Baltic Sea) and Southern Europe (BlueStream II), as well as delivering Central Asian or Middle East gas to Central Europe (Nabucco project). To the north, the Langeled pipeline, supplying gas from the Norwegian Ormen Lange field to the United Kingdom, will be fully commissioned by the end of 2007. From Algeria, two new 8 bcm/yr capacity pipelines should be built in the short-to-medium-term to establish a direct link to Spain (Medgaz) and a route to Italy via Sardinia (Galsi).
In Africa, planned export pipeline schemes include a line from Nigeria to Algeria and another for the expansion of Egyptian supplies to Jordan, Lebanon and Syria. The latter proposed line also involves a potential extension to Turkey in a later phase. In the Middle East, the Dolphin project is due to start delivering Qatari gas to the United Arab Emirates shortly. Feasibility studies are also under way for building a line from Iran to India, through Pakistan.
Besides the long-distance pipeline project from Alaska to the lower-48 US States, new schemesare also planned in northern Latin American countries (between Venezuela and Colombia), as well as in the Caribbean.
In Asia, long-distance pipelines are being considered to deliver Central Asian gas to China, and from Russia's Yakutia to South Korea.
Over the past decade, significant technological achievements have been made in deep-offshore pipe-laying, with the construction of the BlueStream linking Russia to Turkey across the Black Sea at a water depth of 2 200 metres. In the years ahead, technological advances should provide pipeline trade with new
opportunities for growth, while further cutting transportation costs. To fulfil this objective, offshore pipe-laying has led to the introduction of higher pressures, while the use of high-tensile steels (X80, X100 or X120) emerges as the most appropriate option for onshore transportation.
LNG drives gas market globalisation. (Fig 5-3 ) In recent decades, developments in the LNG business have been impressive in many respects. However, the most spectacular growth undoubtedly occurred from the mid-1990s onwards. New players entered the industry, which now numbers 13 exporting and 17 importing countries. Liquefaction capacities more than doubled, from 114 bcm/yr (86 mt/yr) in 1996 to about 243 bcm/yr (183 mt/yr) in 2006. Simultaneously, regasification capacities grew rapidly from 322 to 496 bcm/yr (242 to 373 mt/yr). The LNG tanker fleet expanded massively, with some 220 ships in service last year, compared with 90 ships in 1995. The companies involved have diversified, with power utilities joining their ranks as markets reshape.
More generally, asset acquisitions and shareholding diversifications along the overall chain have largely restructured the traditional LNG model. Competition has intensified as a result of market deregulation procedures. Inter-regional trade has expanded rapidly, driven by price arbitrage between the Atlantic and Pacific basins. Contractual forms have diversified and destination clauses have largely been discarded. Last but not least, the industry has also established new benchmarks, cutting costs significantly at all stages in the chain, commensurately improving project economics and LNG competitiveness.
The increasing need for market flexibility, diversification of sources, and reinforced supply security, are some of the reasons why LNG will increasingly play a key role in rebalancing gas markets worldwide. Cedigaz anticipates a sustained growth of world LNG flows, rising from 211 bcm in 2006 to about 510 bcm/yr by 2020, an annual average rate of 6.5%. With these growth patterns, LNG's share of total world gas trade could soar to about 36%, from the current 22.5%.
Although likely to display glaring contrasts, markets East and West of Suez harbour significant growth potential for LNG.
With an increasingly diversified portfolio of supply sources, LNG demand East of Suez could reach 220 bcm/yr by 2020. With predicted annual growth of about 3.6%, the leading position of markets East of Suez in global LNG demand is set to weaken rapidly to approximately 45% of the world total in 2020 (64% in 2006). While Japan and South Korea are likely to continue to provide significant impetus to LNG tanker trade in the region, China and India will import increasing volumes to supplement domestic gas.
With most gas-short OECD countries concentrated in the Atlantic Basin, West of Suez markets, where LNG demand has grown 70% in the past five years compared with 25% in the Pacific Basin, harbour the strongest growth potential. The area could see approximately 9.5% growth per year by 2020 to about 270 bcm (76 bcm in 2006). From the turn of the next decade - while US gas production should continue to grow as a result of unconventional gas developments - the rapid decline of Canadian production, combined with increasing local gas needs, should generate a massive call on LNG suppliers to restore the North American market balance. Europe's growing dependence on external supplies could reach some 60% by 2015. To cover part of the supply gap, traditional operators and new entrants are actively developing and planning new import capacities. While new import pipeline capacities from Norway, Algeria and Russia will help secure a portion of additional demand, Europe will need ever more LNG. Potential LNG receiving capacities amounting to 153 bcm/yr are being built and planned.
On the supply side, since 2000, additional liquefaction capacity of about 88 bcm/yr has started producing LNG, half of it in the Atlantic Basin. The Pacific Basin still hosts 41% of the world's capacity.
The LNG industry is currently going through a sellers' market. Stimulated by the discovery of large gas resources in new areas (Australia, West Africa, Egypt, Peru) and the growth potential of LNG demand, national and international companies are investing massively in the construction of new trains at existing facilities and grassroots plants. Liquefaction capacity is therefore slated to climb sharply to some 350 bcm/yr by 2010, growing at an average annual rate of 8%.
A radical shift in the location pattern of liquefaction capacities is already clearly under way, and by 2010 the Middle East and Pacific Basin should equally share about 70% of the world total. Although new projects are due for commissioning in the coming months in the Atlantic Basin, at least 57% of total new capacity will be located in Qatar and Yemen. Qatar already counts as the world's largest LNG exporter, Indonesia relinquishing its leadership. The Pacific Basin's share is bound to shrink further, owing to the rapid growth of new capacity outside this basin and the anticipated drop in Indonesia's export potential, with which other countries in the region will have to contend. The Indonesian Government's determination to boost gas supplies to its domestic market will limit the nation's LNG export potential.
On the technological front, the industry is intensifying its economy drives, improving project economics by economies of scale. With regard to liquefaction, very large capacity trains are in the offing, as shown by Qatar's Qatargas II and RasGas II 10.4 bcm/yr per train projects, compared to the current world's biggest (RasGas 3rd Train) with a capacity of 6.3 bcm/yr.
Major advances are also under way for the new generation of LNG tankers. Standard tanker size has already increased to 155 000 m3, and several orders have already been placed for ship capacities of 210 000 and even 260 000 m3. Improved insulation systems and the adoption of more efficient propulsion modes are among major technological improvements.
The trend is towards larger regasification plants, up to 9 bcm/yr, as well as new concepts for offshore receiving terminals (single-point mooring, gravity-based structures, floating storage regasification unit, floating converted carrier) to comply with stringent environmental regulations.
Although each export project has its own specificities, liquefaction plus sea transport often emerges as the most competitive option for commercialising large gas reserves when distances from producer to end-user exceed about 3 200 km. However, in the longer term, few countries will be endowed with sufficient and suitably-located gas resources capable of durably sustaining export capacity and, in most cases, a local market. Since offshore areas, where about 40% of proven reserves are located, offer promising prospects for new gas discoveries, new transportation concepts will become the key to realising reserves from smaller, remote fields. Offshore liquefaction plants are emerging as one option, although, up to now, they have not become commercial. Mini-LNG plants, which are already used for peak-shaving applications in a number of countries, are also part of the possibilities, although the economics have not proved favourable so far.
New emerging transportation technologies. An alternative way to export gas, while cutting transportation costs, which remain a major hurdle for the industry, is to convert it into liquid fuels for the transportation sector or chemicals (oxygenates, methanol and DME [dimethylether]). A new GTL plant was recently commissioned in Qatar. However, GTL projects are highly energy- and capital-intensive, and rising gas prices and investment costs currently make these projects rather uneconomic, with the breakeven price of crude now being around US$ 30/bbl compared to US$ 20/bbl a few years ago.
CNG technology provides another alternative to transporting small volumes of gas over shorter distances, at pressures of about 200 bar. This option is aimed at utilising offshore reserves that cannot be produced, owing to a lack of pipeline availability or because the economics do not make LNG viable. CNG can accommodate small gas fields, even of 1 to 3 bcm. Coselle and VOTRANS are two would-be commercial, high-pressure gas storage and transport technologies for CNG.
Transportation technologies enabling gas to enter new outlets also include the conversion of gas into electricity and then its transmission by wire over long distances. Although a number of obstacles still remain to be overcome before this option develops significantly, recent advances in semiconductors and insulating materials have reduced transmission costs for high-voltage DC electricity.