World demand for gas is expected to rocket, yet future natural gas and liquefied natural gas projects remain threatened by the link of gas prices to crude oil prices.
This is the main message that emerged from the 19th World Gas Conference in Milan last week. A number of reports predicted regional demand for gas. All foresaw a rise.
International Gas Union (IGU), organizer of the conference, said world natural gas production has continued to rise despite a significant downturn in industrial production.
During 1990-93 world gas consumption rose 1.4%/year, said IGU. West/year in nd gas use region saw a 7%/year rise. Only eastern Europe saw a dramatic fall in demand.
IGU said world gas reserves reached a total of 145 trillion cu m in 1993, an increase of 12% during 3 years.
"Today, world gas reserves are almost equivalent to those of oil," IGU said. "If we consider that in 1970 they were only half those of oil, we can realize the effort made by the industry to make gas a sound basis for great future developments."
Gas meets 23% of current world energy demand, an increase of 1 percentage point from 1990.
EUROPEAN DEMAND
Klaus Liesen, chairman of Germany's Ruhrgas AG, said gas accounts for 19% of energy consumption in western Europe, equal to 260 million metric tons/year of oil.
"If present forecasts are to be believed, gas will continue to be the No. 1 growth fuel in western Europe," Liesen said.
IGU has forecast an increase in gas consumption of 140 million metric tons of oil equivalent/year by 2010.
"On this basis," Liesen said, "gas consumption would rise as high as 400 million metric tons/year of oil equivalent. This would mean gas would be on the way to covering one quarter of total energy demand."
Gas used in Central Europe is forecast by IGU to rise by 40 million metric tons of oil equivalent/year to 95 million metric tons of oil equivalent/year in 2010.
Rem Vyakhirev, president of Russia's Gazprom, said the share of gas used for electrical power generation in Europe will double by 2010. He predicted European gas production at that time will be 580 billion cu m/year.
Vittorio Meazzini, chairman and chief executive of Italy's Snam, said natural gas consumption in southern Europe is about 75 billion cu m/year, of which two thirds is used in Italy.
"Natural gas meets more than a quarter of Italy's energy demand," Meazzini said, "placing it among European leaders in this area."
Italy has gas reserves of more than 350 billion cu m, while the rest of southern Europe has only 150 billion cu m. Yet total demand in southern Europe is expected to double to 150 billion cu m/year by 2010.
OIL, GAS PRICES
"We are all aware that we must take consumption predictions with a pinch of salt," Liesen said. "They make various assumptions, some of which may not hold true."
Liesen sees the key question as whether enough gas can be mobilized at the right time and under viable economic conditions to meet expected demand.
"Over the last 10 years there has been a heavy fall in oil prices in Europe," Liesen said. "Today, real term oil prices are well below the 1974 level. Gas prices have followed this trend because they had no option. The only alternative would have meant stagnation and cuts in the market share of gas."
Although low gas prices may appear to be good news for importers and consumers, Liesen said, the low price is not a result of gas surplus but exclusively due to low prices of competing fuels, particularly fuel oil and imported coal.
"So," Liesen said, "we have an energy price level which, in many instances, does not allow development of major new gas projects or signing of contracts for new deliveries to Europe under terms that are both economically attractive to the exporting nation and competitive for importing countries.'
Liesen sees the main hope for improving the gas production cost:market price ratio as cutting costs and improving efficiency, all the way from exploration through marketing.
This approach, said Liesen, calls for new forms of cooperation between exporters and importers and a new look at the balance between investment and risk.
He warned, "Gas importers will have to come to terms with the fact that they will only be able to secure additional quantities of gas if they are willing and able to make commitments outside consumer countries and to accept risks.
"This would strengthen cooperation between importers and exporters, allowing risk sharing and distribution of financial obligations project by project. The balance of interests between partners would remain essentially unchanged."
Economic yield from major new projects could be advanced by rapid buildup of production to plateau levels, Liesen said. But this would need strong gas merchant companies able to tap large new markets.
Rem Vyakhirev, president of Gazprom, cited gas price problems on two fronts: government control of domestic gas prices and customers' inability to pay for gas.
He said, "Since prices for natural gas are being regulated by the government they considerably lag free market prices. "
Gazprom's materials and technical resources costs were said to be in line with world market spending requirements.
Vyakhirev said, "Nonpayments by consumers amount to trillions of rubles. All these problems create considerable difficulties in financing new gas production and transportation projects as well as reconstruction of current operations."
Snam's Meazzini said southern Europe's distance from large gas fields has hindered natural gas consumption in the region. Lower gas revenues in comparison with oil have favored investment in oil infrastructure rather than gas.
He said, "Relatively low levels of energy prices and especially the assumption that these will remain low in the future leave little room to cover gas infrastructure costs."
INDONESIA
Faisal Abda'Oe, president of Indonesia's state owned Pertamina, said his country will concentrate on two areas for future gas marketing: regional exports of LNG to Asia-Pacific markets and expansion of Indonesia's domestic market.
Abda'Oe said, "What happens in the gas markets of Europe and North America will certainly be of interest but probably will have little direct impact except through the common link with oil prices-not only what they are but also what buyers and sellers expect them to be."
Expansion of Indonesia's domestic gas use has been driven by the government's industrialization program and a growing imbalance between crude oil supply and demand in the country.
Abda'Oe said, "Four government policies with improved incentives have been developed since the late 1980s. These policies were designed to encourage exploration and development of hydrocarbon reserves in general but contained specific provisions in fiscal terms for natural gas development as well."
These programs particularly affected use of natural gas for power generation. Abda'Oe listed a number of projects that require new gas production expected to be more than 5 billion cu m/year.
Indonesia's three largest combined cycle power stations to date were inaugurated in March.
Atlantic Richfield Corp. and Pertamina supply gas to two of the new stations, near Jakarta, from the Offshore Northwest Java gas fields project. ARCO's North Bali and the Kodeco West Madura blocks supply gas to the third station, a 1.5 million kw plant at Gresik in East Java.
North Bali and West Madura also supply local gas utility PGN. And a fertilizer plant is due for start-up soon near the Gresik complex.
Abda'Oe reported that the first phase of Sumatra's gas pipeline grid is in progress. This is made up of a 540 km section connecting Asamera field reserves in South Sumatra with the huge Duri field steamflood project in Riau province.
Using gas from Asamera will release for export as much as 60,000 b/d of crude oil that is being burned for the steamflood, Abda'Oe said.
A second 283 km stage of the Sumatra pipeline is planned to fuel industrial development projects on Batam Island near Singapore. Gas could be flowing to Duri by 1996 and to Batam 1 year later.
The Sumatran grid will be followed by an extension to Java and open the way to expansion of the largest domestic gas market in Indonesia, Abda'Oe said.
Completion of domestic gas projects in the current 5 year plan is predicted to release for export as much as 300,000 b/d of crude.
RUSSIA
Gazprom Pres. Rem Vyakhirev told delegates his company is steadily providing enough gas for domestic consumption and exports despite the complicated state of Russia's economic reforms.
He said, "This is explained by the fact that we took over a united gas supply system formed over many years and prevented its disintegration."
Gazprom is in charge of Russia's 100 largest gas fields. They hold reserves of 35 trillion cu m, or 71% of Russia's total explored gas reserves. Seventy-eight of these fields are on production, with reserves amounting to 19.4 trillion cu m.
Gazprom accounts for 93.3% of gas production in Russia and practically all its transportation.
Russia's current gas problems stem from independence of former Soviet Union republics that once were an integral part of the Soviet gas grid and changeover from state to private enterprise.
"At present, 50% of active underground gas storage capacity remains outside Russian territory, mainly in Ukraine," Vyakhirev said. "It compels us to develop intensively a new underground gas storage network in Gazprom to achieve the required level of reliable gas supply."
Other upward pressure on gas production costs will come from the nature of Russia's new gas developments, Vyakhirev said.
Development cost estimates for gas fields in the Yamal Peninsula and Nadym-Pur-Tazovsky regions of western Siberia have increased by one third because of environmental concerns and the need to install infrastructure under continuous permafrost.
Similarly, depletion of gas reserves in the most productive areas of western Siberia will require development of smaller fields at greater depths, also increasing production costs.
"A lot of difficulties arise in our work because there are no legal fundamentals in the country to ensure functioning of all branches of the energy industry, as it transfers to a market economy," Vyakhirev said.
"Our' wealth of relatively cheap power resources did not stimulate their rational use. One third of Russia's total power consumption could be saved, giving a potential saving in natural gas consumption of 90-110 billion cu m."
Gazprom expects to increase Russia's gas reserves by 15 trillion cu m by 2010. This, said Vyakhirev, will afford Russian gas production of 910-960 billion cu m/year by 2010.
Increased gas production will come at first from expanding production in Yamburg, Yubileinoye, and Komsomolsky, fields in the Nadym-Pur-Tazovsky region.
Then a number of other fields in the same region, including Yamsoveiskoye, Kharvutinskoye, and Zapolyarnoye, will be developed.
Further growth in gas production will come from developments on the Yamal Peninsula, where 25 fields have been discovered with total reserves estimated at 10.2 trillion cu m of gas.
Vyakhirev said, "Four big fields-Bovanenskoye, Kharasaveiskoye, Kruzenshternovskoye, and Novoportovskoye-have been prepared for industrial exploitation in this region. Maximum level of production on the Yamal Peninsula can reach 170 billion cu m/year."
Seventeen gas fields also have been discovered off northern Russia. The most important are Shtokmanovskoye in the Barents Sea and Rusanovskoye in the Kara Sea.
"Development of Shtokmanovskoye can be started in the near future," Vyakhirev said. "Proved reserves of , 2.8 trillion cu m of gas will enable 50 billion cu m/year of gas production."
Besides development of fields for gas supplies, Gazprom plans to increase its interests in other gas related markets. For example, Gazprom is developing a market for compressed natural gas (CNG) fuel for automobiles.
In Russia, 190 CNG service stations are available to motorists. About 30,000 automobiles/day are filled with CNG, Vyakhirev said.
Development of ethane rich gas reserves in Novourengoisky field in western Siberia is expected to provide feedstock for a petrochemical complex built near the field. This will produce polyethylene and other commercial products.
Other prospects include construction of methanol plants on the Kola Peninsula, with some product destined for export, and cogeneration plants from which Gazprom will provide electricity to consumers. Also, an LNG plant to utilize gas from Kharasaveiskoye field is under consideration.
SOUTHERN EUROPE
Of the 150 billion cu m/year of gas demand predicted in southern Europe for 2010, about 80 billion cu m/year is guaranteed by existing supply contracts and less than 20 billion cu m/year by production in the region, Snam's Meazzini said.
"Fifty billion cu m/year therefore remains to be met over the next decade," he said, "which illustrates the extent to which countries of southern Europe are of interest to potential suppliers. "
A gas import pipeline from Russia to Bulgaria and Turkey is expected to be doubled in capacity shortly, he said, and the trans-Med pipeline from Algeria is being expanded.
Spain has three LNG regasification terminals supplying a market of more than 5 billion cu m/year. Italy has one LNG regasification plant supplying a 3 billion cu m/year market.
In addition, Meazzini said, a fourth Spanish terminal is expected to be built in Galicia, a new terminal in Turkey will soon be able to supply 2 billion cu m/year imported from Algeria, and a small terminal is currently under construction in Greece.
Prospective pipeline and LNG projects offer southern Europe access to 75% of the world's gas reserves, which he in North Africa, the Middle East, and former Soviet Union, he said. The 50 billion cu m/year incremental demand for southern Europe is estimated by him to require additional investments totaling about $50 billion.
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