CERAWeek 2014 - Global Gas Plenary

Michael Stoppard, IHS Energy's Chief Strategist for Global Gas, chaired the Global Gas Plenary Wednesday morning joined by Rob Franklin, President, ExxonMobil Gas & Power Marketing Company; Sam Laidlaw, Chief Executive, Centrica PLC; and Chris Finlayson, Chief Executive Officer, BG Group. The panel agreed that there will be significant demand growth in natural gas in the coming years, driven by the electric power sector and the Asia Pacific region. The discussion touched on the significant competitive advantages held by the United States, including a long-term outlook for low-cost gas supply. The panelists noted the uniqueness of the US royalty system that rewards both land owners and shale gas developers. Panelists held various views on the feasibility of replicating the US shale gas success in Europe and Asia, where gas imports are expected to rise. Maintaining gas supply security and investment in a global market with an increasing number of new players was also discussed. The panelists emphasized that while new companies are effective at taking advantage of new opportunities, stable and credible actors, such as governments and large integrated energy companies, are needed to achieve the long-term contracts and ensure sufficient investment in large gas supply projects.

Rob Franklin, President, ExxonMobil Gas & Power Marketing Company, focused his remarks on the growing scale of global gas demand, which is expected to triple by 2040. Mr. Franklin pointed out the stark differences among regional growth expectations for long-term gas demand, projected to be relatively flat in Europe, grow steadily in North America, and take off in the Asia Pacific. Mr. Franklin noted that the greatest opportunities for gas suppliers will be in Asia where half of the supply will come from LNG or pipeline. He said that it will take time for the United States to boost LNG exports, and although some volumes would be exported by 2018, exports will not ramp up until 2020 or later. Mr. Franklin expressed regret at recent trends in the European market that are pushing "affordable gas" out in favor of "horrifically expensive" renewables and more polluting coal. This is, he said, contributing to rising energy costs and the decline of industrial competitiveness in Europe.

Sam Laidlaw, Chief Executive, Centrica PLC, expressed concern about Europe's stagnating gas demand. With residential demand declining and industrial demand flat, he pointed to the power sector as the only hope for gas demand growth in the region. Mr. Laidlaw said that government support of renewables is destroying value in electric power utilities. Declaring that "political uncertainty is the enemy of investment," he noted that the lack of investment in Europe's electric power sector is increasing the possibility of power outages. Mr. Laidlaw also said that the promise of European shale gas should not be written off despite the slow start. As the share of gas imports rises and the share of intermittent renewables continues to grow, there will be more incentives to reform the policy environment for investment in local gas supply, including shale gas-although this will take time. Mr. Laidlaw concluded by mentioning Centrica's efforts to empower consumers to manage their personal energy use using smart phones, potentially leading to more efficiency and costs savings.

Chris Finlayson, Chief Executive Officer, BG Group, focused his remarks on the issues arising in the growing global LNG trade. With the rapidly growing gas market, Mr. Finlayson said he expects the LNG share of gas supply to grow from 10% to 14% by 2025. He estimated that this growth will require an additional investment of $400 billion in LNG projects, noting that supply will be the continued constraint on gas markets. He said that long-term and medium-term contracts will continue to dominate in order to ensure investment, while spot trade will operate at the margins. This structure is more important, Mr. Finlayson said, than whether the contracts are oil-indexed or linked to Henry Hub prices. Noting the increasing technical complexity and the lengthening supply chains, Mr. Finlayson said that continued upward pressure on LNG costs will lead to the reality of "no cheap LNG."

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.