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Natural Gas to Overtake Oil, Says Industry Veteran Steffes

August 17, 2009
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Natural gas is on track to become the world's dominant fuel in the next 10 years as intercontinental pipelines crisscross countries and producers unlock the energy inside untold amounts of shale, a Houston-based consultant said Thursday.

Dale Steffes said he has "no doubts" that gas is gaining influence in the world's energy markets with each passing day. "It's going to play a bigger role in setting the price for world energy," he told NGI. "There's shale everywhere. That means there's gas everywhere. Who knows how much?"

Steffes has been in the energy business for more than 30 years, once working for Panhandle Eastern Pipe Line Co. LP, and today running Planning & Forecasting Consultants in Houston. He assists companies with their energy plans, and among other things, he designed the World Oil Stability Policy used by OPEC and the International Energy Agency.

"I've seen all the trends for close to 50 years," Steffes said. "More than once we've thought gas was disappearing, that supply was drying up...that the oil supply had peaked. I've had arguments with some of the experts, and I've missed a few trends, but gas isn't going away. Supplies are just getting bigger. Gas started out just being used in residential areas, just in the northern markets, but it's really changed in the past couple of years. It's really taking off. Everywhere...not just here but worldwide.

"Look at the globe," he said. "Intercontinental gas pipelines are going up all over Europe, all over China, all over South America...and we don't even know how much oil and gas is in South America yet. Some think there's more there than in the Middle East. There are pipelines going up all over the United States [and] Canada. We haven't gotten to the point where we can't keep up, but there's a lot of gas out there. And everyone wants to use it."

In December 1985 when oil was trading above $20/bbl, Steffes predicted prices would trend up and down, but return to a level of around $15/bbl for up to 15 years. At the time the forecast was considered controversial, but when it was said and done, Steffes came close to being on the mark.

His latest forecast calls for a "major trend discontinuity, from an oil-dominated world to one dominated by natural gas. Liquefied natural gas (LNG) will become "more of a commodity... LNG is not doing too well right now, but that's going to change."

Infrastructure for gas transportation and distribution is more costly than oil infrastructure. "Oil is much easier to transport, cheaper to store than natural gas," he said. But gas "is environmentally favored...especially over coal sources. That is going to make a bigger difference in the next few years..."

The price of oil has to move lower and stay lower over the longer term to compete with gas, Steffes said. "World liquid petroleum consumption probably has peaked for the next decade, maybe even past 2010. It could decline for several years."

If there is -- and he believes there will be -- growth in natural gas as a transportation fuel, "the oil producers will not be able to recapture their traditional transportation market," he said. The transportation fleet "will be improving efficiency by mandates in this country and by how elastic gas prices are. And the electric car is here, and that's going to indirectly be fueled by everything but oil."

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