Gastech: LNG development driving changes in gas markets

Angel White
HOUSTON, Dec. 15 -- Driven by the rapid development of LNG, gas markets are being transformed from regional into global markets and have been undergoing other major changes, said Total SA Executive Vice-Pres. Yves-Louis Darricarrere at the 2006 Gastech Conference in Abu Dhabi.

"As long as LNG flows were concentrated east of the Suez Canal and based on inflexible, very long-term contracts, they basically reflected the same relationship of mutual interdependence as when producers and consumers were linked by a gas pipeline. It's just that a different technological solution was used."

He said globalization of gas markets will soon result from the development of consumption in the Atlantic markets combined with the growing liquidity of spot markets such as Henry Hub in the US and the UK's National Balancing Point.

Global gas consumption is expected to continue to grow by 2-3%/year through 2020. Fueled by this demand along with expensive and limited pipe solutions and the gradual depletion of gas fields near main consumer regions—which is pushing supply further and further away from markets—LNG is taking a larger share of the traded gas market. It is growing by 8%/year to represent 40% of traded gas in 2020 and 15% of consumption, Darricarrere said.

"In this context, the Middle East, which sits on one third of the world's natural gas reserves and is located halfway between the two major consumer regions—the United States and Asia—is on the way to becoming the world's leading source of LNG, with a unique position of arbitrating the markets," he said.

"The Middle East is where we can observe how the gas industry is changing, not only because of the strategic location of its gas resources, but also [because of the] favorable conditions for the implementation of a variety of new gas technologies."

Gas projects
Darricarrere said megaprojects worldwide, but particularly in Qatar, are becoming "bolder and more daring. LNG projects are not only innovative by their size but by their design and commercial arrangements," he said.

In addition, there is a sharp increase in the number of gas receiving terminals in the main markets, particularly the US and Europe; construction of new long-reach pipelines, such as the 380-km Dolphin pipeline that extends from Qatar to the UAE; and with the development of sour gas and of gas fields in harsh environments, such as that off Sakhalin Island.

For all the projects to be launched and meet success, major capital programs will have to be carried out in both producer countries and consumer regions.

According to International Energy Agency estimates, Darricarrere said, capital investments for gas projects over the next 25 years are placed at $3.9 trillion ($156 billion/year), with the largest investment, $2.2 trillion, being in exploration and production followed by $1.3 trillion for pipes, $100 billion for storage, and $300 billion for LNG.

However, he said, there are numerous smaller innovations such as the systematic use of associated gas in the new projects or the multiflow transport of hydrocarbons, which together are very important to bringing more gas resources to the markets in a sustainable and responsible way.

He said it is evident that "[companies will] have to cost-effectively develop gas resources that are located farther and farther from the markets and that are smaller and smaller and more and more difficult to produce."

But just as with many technical challenges, these challenges also will surely be met, Darricarrere said.

Managing growth
Technology and human resources will drive continued innovation in the gas industry, Darricarrere said.

Technology already allows us to reach resources that were previously considered "stranded." Nevertheless, "a sustained effort is required to reach even more difficult developments and transform more stranded gas into commercial fields," he said. "Growth in the gas market, which is very solid, … cannot be met without deploying more technology in a world where the easiest resources have already been tapped.

"Arctic gas fields, tight gas, very sour gas, small and remote resources will all benefit from new technologies, and, in common with large gas developments, they all have to address the need to improve the energy efficiency of our plants, particularly in LNG, not to mention GTL [gas-to-liquids]," he added.

Along with the need for technology, the gas industry requires more human resources due to the increasing complexity of gas projects—finding markets, setting commercial terms, managing onshore plants in harmony with host communities and sometimes across borders.

"Sourcing more people locally is critical," for a number of reasons, Darricarrere said. Local know-how is a major advantage in designing projects that benefit all stakeholders. They help in developing markets, in maintaining relations with customers, in supporting local communities in their sustainable development, and in operating and maintaining a plant over 20 years or more. Secondly, maximizing the involvement of the people to whom the projects matter simply makes good business sense.

"Companies that can put forward dedicated technological capabilities and the right people to guide stakeholders through the right decision process then implement the project on time and on budget will not only maximize the benefits for host communities and countries but also help to meet the gas challenges," he concluded.

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