With demand for natural gas expected to grow worldwide the next 15 years, privatization, opening of markets, and decreasing costs to producers and consumers will command center stage for the global gas industry.
This view was presented to delegates at the Gastech '96 conference in Vienna last week by Ian Rushby, director of marketing and business development for gas, BP Exploration Operating Co. Ltd.
Rushby said that while the U.S. and U.K. gas markets are most advanced in their levels of openness and privatization, forces of change are apparent in other markets such as Australia and Europe.
In Asia, Rushby said independent power projects are advancing, many of which will be gas-fired. These are forcing governments in the region to consider opening their gas markets to ensure that competitive gas supplies are available as fuel.
"In gas producing countries," said Rushby, "governments are increasingly recognizing that gas is different from oil, and developments will only take place if they implement fiscal arrangements that recognize the higher transportation costs and longer payback times for gas-related investments."
Among governments that have or are planning fiscal regimes that recognize the particular characteristics of liquefied natural gas (LNG), Rushby cited Qatar, Papua New Guinea, Indonesia, Nigeria, and Oman.
Declining costs
The gas industry also is beginning to see a decline in costs, with high-strength steels, automatic welding, and faster pipelaying techniques bringing down the cost of gas pipelines.
"This is improving the prospects of some of the planned long-distance pipeline schemes," said Rushby, "to bring the massive gas reserves in the Middle East, Central Asia, and Russia to markets in Asia and Europe, although it will be some years before we see some of these schemes come to fruition."
There also has been a large reduction in the cost of LNG plants and ships. A few years ago, a new 135,000 cu m capacity LNG carrier would have cost more than $300 million; increasing competition among shipyards has helped cut the cost to $225 million.
Rushby said several contracts for construction of greenfield LNG plants have been awarded the last few months, and each has cost less in terms of capital cost per unit of liquefaction capacity.
"These changes augur well for future growth of the gas industry," said Rushby. "Lower costs throughout the chain encourage new consumers and make the development of the more remote and potentially higher cost gas reserves needed to satisfy the demand technically and economically feasible."
Asian markets
Rushby said the Asian LNG market is beginning to change, with Japan's dominance as a buyer being increasingly eroded by South Korea, Taiwan, and potentially Thailand, China and India.
Hasan Baharuddin, senior vice-president of Indonesian state firm Petamina, said Asia's emerging economies are expected to grow at more than double the global rate, and environmental concerns are growing within the region.
"Consequently," said Baharuddin, "the Asia-Pacific region will become the most important growth market in the world for natural gas. In preparation for this huge growth in demand, resources both internal and external to the region must be developed.
"So far, regional producers have been able to provide most of the required supply. For the next stage of development, however-from now until the turn of the century-the Middle East and other exporting regions will play an increasingly important role."
Baharuddin said a significant increase in gas pipeline development is expected during the next 15 years in the Asia-Pacific region, while LNG shipments are expected to more than double during 1995-2010.
Asian gas supply
While Malaysia and Indonesia have contributed 80% of new LNG capacity that has come on stream in the 1990s, the next stage of LNG market development in the Asia-Pacific region will see the Middle East provide 75% of new supplies, namely from Oman and Qatar.
Yet expansion of existing LNG facilities and development of grassroots LNG plants within the Asia-Pacific region will continue as further gas finds in the area are exploited.
"Recent gas discoveries in Sumatra, Irian Jaya, and the Timor Gap, as well as additional finds in East Kalimantan, are very encouraging," said Baharuddin.
"Depending on project economies and market reception, the Natuna project together with development of new discoveries could supply more than 20 million tons/year to the region by 2010."
New supplies within Asia-Pacific region, along with future gas exports from the Middle East and possibly the former Soviet Union, are expected to be bought by new markets in addition to traditional gas users.
Asian gas demand
Baharuddin expects Japan to remain as the largest single market for gas in Asia Pacific region, importing 46 million tons of LNG in 1996, 50-55 million tons in 2000, and roughly 65-70 million tons by 2010.
"Although this growth in natural gas/LNG demand is remarkable," said Baharuddin, "the gas demand projected for the rest of Asia-Pacific region will be at least as impressive. For example, South Korea and Taiwan combined will add almost 25 million tons/year of imported gas by 2010."
Among new gas consumers, China is expected to sanction one or more LNG import terminals on its southeastern coast, with first imports likely around 2003. Thailand is expected to confirm plans to import LNG beginning in 2003 and could start building receiving facilities as soon as next year.
Gas Authority of India Ltd. is promoting more than 10 import projects, with first LNG imports possible around 2005. Pakistan is studying LNG imports in addition to pipeline plants.
"Together Thailand, China, India, and Pakistan could import 15-20 million tons/year of LNG," said Baharuddin, "while continued development of domestic and interregional gas pipelines in countries such as Malaysia, Thailand, Indonesia, and China could require the equivalent of another 30 million tons/year.
"As a result of this expected growth, markets outside Japan will increase their combined share of the total Asia-Pacific gas market from less than one third in the 1970s to more than 75% by 2010.
"Interestingly, whereas Japan is likely to remain primarily an LNG market in the near future, several of the developing gas markets, such as Thailand, China, and India, have the potential to develop as both LNG and pipeline gas markets."
Europe, North America
Snorre Jensen, vice-president of Norway's Den norske stats oljeselskap AS (Statoil), said Europe's gas requirements also are set to increase, with demand expected to rise to 570 billion cu m of natural gas in 2010 from 390 billion cu m in 1995.
Jensen said Northwest Europe is expected to produce about 20 billion cu m/year less than it requires in the near future, except for the U.K. Britain could become a net importer after 2005, however.
Southern Europe holds the greatest potential for imports, however, with demand in the next 15 years expected to increase by 35-80 billion cu m/year.
North America is the world's most mature market and will remain the world's biggest gas consumer, Jensen said.
Current gas consumption in North America is 600 billion cu m/year. Canada used 70 billion cu m of its own gas last year and exported 80 billion cu m to the U.S.
Gas price volatility is strongest on the U.S. East Coast, where consumption was 200 billion cu m last year. Jensen noted the region's distance from supply sources makes LNG imports viable here, with first shipments of LNG from Trinidad expected to arrive in Boston in 1999.
OPEC's gas role
After a period of losing market share in oil production, Organization of Petroleum Exporting Countries (OPEC) expects to increase its share of both oil and gas markets by 2010.
Rilwanu Lukman, secretary general of OPEC, told the Gastech '96 conference in Vienna that in 2010 OPEC will provide 48% of the world's crude oil, compared with 40% last year.
"OPEC will provide 19% of the world's natural gas in 2010," said Lukman, "up from 13% in 1995. OPEC accounts for 41.3% of the world's proven gas reserves; without us the world will run out of gas in about 35 years."
Lukman said the worldwide total reserves of natural gas is 140 trillion cu m, equivalent to 60 years' supply at forecast production rates.
But many developed countries have gas contracts that expire early next century, and considerable capital investment will be required to meet new and replacement contracts.
"A massive amount of exploration and production investment is required for gas industry expansion," said Lukman.
"Most exporters outside the Organisation for Economic Cooperation and Development (OECD) depend heavily on their own finances for gas developments. But most countries that are gas exporters have little domestic gas demand; therefore, they will increasingly have to turn to foreign investors."
Copyright 1996 Oil & Gas Journal. All Rights Reserved.
