Shaped by the continued rapid growth of liquefied natural gas (LNG), the natural gas sector is poised for “tremendous” growth over the next 20 years, and sometime between 2020 and 2030 it will overtake oil as the world’s preferred fuel, the CEO of Shell Gas and Power said last week.

Malcolm Brinded, speaking at the Oil and Money Conference in London, said that as global demand for energy increases, gas is “increasingly playing a more significant and strategic role” to meet that demand. Regional markets that include North America, Europe and Asia Pacific are becoming increasingly interconnected, and the desire of governments to find secure and diverse energy supplies will be crucial, he said.

Exxon Mobil Corp. Chairman Lee R. Raymond, also speaking at the conference, believes there will be a “substantial increase” in natural gas use over the next 20 years. Exxon is forecasting gas to supply about 25% of world energy demand by 2020, with LNG use growing four times over by then.

As gas becomes more important, Brinded stressed that gas markets will not develop in the same way as the oil markets because of gas’ high development, storage and transportation costs. “Long-term contracts will tend to prevail as customers require security of supply, and investors need confidence in markets before making investment decisions.”

The “falling indigenous supply from maturing fields in the U.S. and the EU (European Union) will not be enough to meet steadily rising demand,” said Brinded. “The U.S. won’t be able to rely only on Canada, nor Europe only on Russia, to meet the shortfall. More imports will be needed — and LNG will have some 15-20% of those markets by 2020 or so.”

U.S. markets will exert a “major pull” in the LNG market by 2010, Brinded said. “Not all the potential regasification projects in North America will come to fruition, of course. But market analysis suggests 40,000-80,000 tons/year of open demand in the next 10 years.”

Currently, there are 12 countries with LNG plants with about 110,000 tons of annual sales, Brinded said. According to the Department of Energy there are 17 LNG export terminals worldwide, 40 LNG import terminals and 136 specially-designed LNG ships.

Arlington, VA-based Energy Ventures Analysis Inc. recently reported in its long-term FuelCast outlook that 42 gas liquefaction projects have been proposed worldwide, totaling 27.2 Bcf/d of incremental LNG supply output. The group of proposed projects include 19 expansions and 23 greenfield projects with 15 of the greenfields serving the Pacific basin and 27 capable of serving the Atlantic basin.

Meanwhile in addition to the four LNG import terminals that are currently operating in the United States, about 34 new LNG import terminals are planned for North America along the Pacific, Atlantic and Gulf Coasts.

“In 10 years’ time there will be more than twice as many plants in twice as many countries supplying twice as much LNG to a larger base of customers — which will be good for everyone,” Brinded said, predicting that as much as $80 billion a year over the next 10 years may be spent to support LNG growth “in just the Atlantic Basin; and about two-thirds of that is likely to relate to North America.”

Regional price differences still will predominantly reflect the fundamental supply and demand balance and number of customers in each region, as well as LNG shipping and storage costs, said Brinded. However, the prices will include “mushy and delayed action transmission, quite different from the direct drive of the oil market.” Another trend he sees will be toward international gas contracts, which most likely will be long rather than short-term.

To link and strengthen the gas value chain, Brinded said new players will emerge. “We can see a trend: with downstream companies moving upstream, for example, Sempra, GDF, Union Fenosa; and customers getting into supply projects to safeguard the security of their supply…” However, the number of players in the LNG business will remain “significantly smaller” than the range of oil players, he said.

Regarding global prices and LNG, Brinded noted that “market signals show that customers are willing to experiment with pricing mechanisms. It’s not certain where this might lead, but we will see more variety — for example, with the U.S. price linked to Henry Hub; the EU price linked to pipeline gas that is linked to oil, spot gas prices and sometimes electricity and coal; and the Far East prices linked to oil. In all this the direction is apparent, but the pace, and the end point, are uncertain.”

Exxon’s Raymond noted that 50 years ago, gas consumption represented only about 10% of the world’s energy demand. Today, it has risen to nearly 20%, and if “current projects hold, gas will supply about one-quarter of global energy needs” in 20 years.

“Our challenge,” he said, “will be to find innovative and cost-effective ways to develop new supplies from fields far from major markets and unconnected to current distribution networks. In meeting that challenge, we expect LNG usage to grow at least fourfold by 2020. Investment in new infrastructure, utilizing the latest advances in technology, will be key to achieving that growth.”

Raymond added that besides investing in new infrastructure, Exxon plans to make investments “downstream from the LNG plants,” where it plans to acquire “the necessary transportation capacity and develop regasification infrastructure in the United States.”

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.