CERAWeek 2014 - Future of Global Gas: The New Map

Common assumptions about the future of natural gas have been upended over the last few years. Although gas reserves were considered plentiful, they were thought to be disproportionately located in a select group of key countries. New technologies have developed that are shifting the geography of resources. A new map of global gas is emerging.

Shankari Srinivasan, IHS Vice President and Head of Research and Consulting, Power, Gas, Coal, Renewables-EMEA/APAC, chaired the Wednesday afternoon Plenary "Future of Global Gas: The New Map." The panel discussed how common assumptions about natural gas have recently been turned upside down. New technologies are changing the geography of where gas reserves exist and where economic recovery is possible.

Peter Coleman, CEO and Managing Director, Woodside Energy, said that as a result of recent developments in finding and extracting natural gas, the industry must focus on controlling construction and logistical expenses because the costs of reaching these new and remote resources have increased. In particular, the industry must include the construction and logistics of projects earlier in the planning process to better contain costs, which he believes will need to be cut by 40% to ensure long-term profitability. Furthermore, with liquefied natural gas (LNG) becoming a more fungible commodity over the next 15 years, the power between buyers and sellers is changing. The industry needs a business model in which capital more closely aligns with revenue. Better alignment will prevent stranded assets or overdevelopment of new resources that inflate costs without increasing production.

Jean-Marie Dauger, Executive Vice President, GDF Suez, said the emergence of US shale gas production took European markets by surprise and that the lack of clear rules in Europe is making it harder for European energy companies to respond. European companies are seeking to have national and European Union governments clarify policies on extracting gas from shale; however, the continent is currently oversupplied with electric capacity and therefore a near-term transformation of power demand is unlikely. More broadly the current energy markets are volatile and ambiguous so that successful companies need to plan in three dimensions: geography, price, and time. Geographically, the increasing interaction between gas markets allows new sources to reach new markets. The new sources also put pressure on prices, with markets increasingly moving to the same price. The third dimension, time, is important because these larger and longer-term investments are launched with future natural gas prices uncertain, increasing the probability that disruptions could change project economics. Mr. Dauger believes that individual excellence is not enough and that gas players must share the vision and pool their strengths to succeed.

Salvador Namburete, Minister of Energy, Mozambique, discussed Mozambique's plans to develop its newly discovered gas resources, which are outlined in a master energy plan. The plan recommends the development of an LNG terminal for export, increased power production, and more widespread use of energy-intensive fertilizers. The plan prioritizes the LNG project as an anchor for power and fertilizer projects, with the first LNG exports expected in 2018-19. Minister Namburete then described the challenges facing Mozambique: a shortage of capital and skilled labor, limited electrification, and a need for greater integration of the South African Power Pool. To cope with limited capital and labor, he proposed partnerships that would allow outside companies to meet local content rules while giving Mozambican companies the chance to learn industry best practices to develop resources economically. Mozambique plans to use its newfound natural gas resources to expand and diversify electricity generation. Current generation is predominantly hydroelectric and therefore susceptible to unusually dry conditions. With natural gas resources that outstrip local demand, increased electricity generation would allow increased exports, promoting regional grid reliability.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.