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Shell sees LNG market supply constrained Official says that factors such as growing demand in India and China other will continue to cause demand to keep ahead of supply Alan Bailey Petroleum News
A rapidly expanding world population and rising energy demand in emerging economies, especially India and China, will continue to keep liquefied natural gas, or LNG, demand ahead of LNG supplies, Marta Jara Olera, country chair and general director of Shell Mexico, told a meeting of the Alaska World Affairs Council on Dec. 9.
“We believe that the growth of the market will … be constrained by supply, and not by demand,” Olera said.
Growing demand Olera later told Petroleum News that, even with the emergence of shale gas production, a growing need for natural gas coupled with factors such as major economic development along the coast of China will cause the global LNG market to continue growing at the current rate of about 6 percent per annum. The pace of demand is always outgrowing supply, she said.
Olera said that most LNG is traded in long-term contracts linked to the price of oil. The global spot market in LNG is very small and attracts especially high prices, providing gas to meet seasonal demand, for example, she said. And the increase in Japanese gas demand following last year’s earthquake and tsunami has absorbed much of the slack in the market, she said.
The world is currently consuming a little less than 300 billion cubic meters of LNG per year and Shell expects that consumption to increase to nearly 500 billion cubic meters by 2030, Olera told the World Affairs Council.
“There is a lot more regasification infrastructure than there is supply and availability, so all of these fundamentals point to a market we know for sure is going to be tight until 2016 or so,” she said.
Three trends Events such as unrest in the Middle East, the Japanese earthquake and the Deepwater Horizon disaster have combined to create one of the periods of volatility that from time to time characterizes the energy industry, Olera said. And Shell currently sees three major trends that will shape the world’s energy future, she said.
The first of those trends is increasing energy demand, as characterized by the corresponding growth in LNG demand. The world population will increase from 7 billion to 9 billion in the next decade.
“That alone creates a huge pressure on demand,” Olera said.
The second trend is a growing concern about the security of energy supplies, as easily accessible oil is used up. The energy industry needs huge investments to maintain energy supplies, Olera said.
The third trend is an increasing need to manage the impact of energy production and energy use on the environment and on society. That will drive a major increase in the use of renewable energy sources such as biofuels, wind power and solar energy, Olera said.
“But we believe that hydrocarbons will still remain over 60 percent of the global energy supply, with renewables moving from something like 13 percent to 30 percent, and nuclear making up the rest,” she said. “In a nutshell, we are going to need all forms of energy sources to help us fuel the huge demand.”
A key fuel These three trends make it very clear that natural gas is a key fuel, both for the present and for the future, Olera said. It is possible to build a gas-fired power plant more quickly and more cheaply than a coal-fired plant, and coal-fired plants have been responsible for more than 40 percent of the world’s energy-driven carbon dioxide emissions, she said.
“So turning to natural gas is the fastest way to mitigate climate change in the coming years,” she said.
And, while Asian countries are driving a surge in LNG demand, Europe also needs LNG to diversify its gas supply sources. At the same time, the high population density in Europe will make it difficult to develop shale gas there, Olera said.
Australian developments Qatar has become the largest global supplier of LNG, but Australia is set to become a main supplier thanks to that country’s rapidly growing LNG industry. Russia, while a major gas producer, has a ready market in Europe for pipeline gas and is unlikely to become a major LNG producer, Olera said.
Shell is implementing a new floating LNG facility for liquefying natural gas from a major gas field offshore Australia, Olera said. The floating facility, about the size of three football fields and six times the weight of an aircraft carrier, will be the largest floating structure in the world and is designed to withstand hurricane Katrina-strength winds, she said. Once proven, the floating LNG concept should find application in different projects in different locations, she said.
Gas to liquids As another means of monetizing natural gas, Shell has just put into operation a huge gas-to-liquids plant in Qatar, synthesizing diesel fuel, Olera said. The plant produces 170,000 barrels per day of liquid fuel, enough fuel to fill the tanks of 160,000 cars she said. The plant also produces enough synthetic lubricant to lubricate more than 225 million cars, she said.
The commercial scale of this project represents a new breakthrough for the technology, Olera said.
Asked whether government subsidies are essential for a gas-to-liquids development, Olera said that this type of development is very capital intensive and that viability depends on the availability of “very, very cheap gas.” The technology is very challenging from an economic perspective and low taxes could help achieve commercial viability, she said.
As an alternative means of monetizing natural gas, Shell is interested in the use of LNG as a fuel for heavy-duty vehicles and is establishing a corridor with LNG filling stations in Alberta, Olera said. The company is considering the development of small-scale “micro-LNG” plants to produce LNG for the filling stations. Further out in the future, natural gas-fueled power stations may become important in the generation of electricity for electric cars.
Keep options open From the perspective of Alaska, Olera said that exporting natural gas to the Lower 48 does not appear viable because of stable, low gas prices in the Lower 48 market. However, Alaska needs to keep all options open for monetizing its gas. Capital costs in Alaska tend to be relatively high but Shell believes that it is possible to viably develop Alaska’s resources, providing business for local firms, employment for the local workforce and financial benefits for the state, Olera said.
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