Warren R. True
Chief Technology Editor-LNG/Gas Processing
BARCELONA, Apr. 24 -- Speakers on the first day of the 15th Conference & Exhibition on LNG in Barcelona warned attendees that the ability of their industry to supply LNG was in serious question.
Petronas Pres. and Chief Executive Officer Mohamed Hassan Marican, while noting in his morning keynote the tremendous growth of LNG in recent years, nonetheless called attention to the lack of production capacity coming on stream in the last 12 months. And many projects have seen delays. Maricam's comments came in the main keynote of the day.
Frank Harris, head of global LNG consulting at Wood Mackenzie Ltd., Edinburgh, echoed Marican's concerns in an afternoon session on globalization. The world's LNG industry is fixated on expanding natural gas supply, he said, and for good reason.
Forecast LNG demand growth remains strong, and neither regasification capacity nor shipping capacity will constrain it. In short, medium, and long-term, natural gas supply adequacy remains in doubt and will constrain growth of LNG.
Marican predicted an LNG supply crunch by 2010 caused by rising costs and a cap on LNG supply growth. In only recent years, capital expenditures for an LNG supply project were about $200/tonne of export capacity. Today, he said, that figure has risen closer to $1,000/tonne. Projects have seen costs escalate by from 25%-100%.
Among the obstacles to development of new resources, evolving geopolitics is paramount, Marican said, citing events in the Middle East as a well-known example. But he also noted the ominous growth of influence of Russia and Iran, which together hold as much as 40% of world gas reserves.
The LNG industry must also adjust to the maturing of national oil and gas companies, which are working more and more on their own or with other NOGCs. This movement is part of a realignment of partnerships in the industry, Marican said. "Resource nationalism is a reality and cannot be ignored. Creative cooperation between all companies is needed."
Long-term relationships between upstream suppliers and downstream market players, however, will "continue to be the foundation of the LNG business."
Also, as have many observers with increasing alarm in recent months, Marican called for a "serious commitment to development of human resources. "Poaching [by companies of other companies' talent] is not an answer."
WoodMac's Harris said the balance between LNG production and demand will remain very tight through 2010, as existing capacity and capacity under construction barely keep up with forecast demand.
From 2011, supply Harris classified as "probable" must come on line; so-called "possible" demand beyond that must be ready after 2012, he said.
Delays to both categories are likely, however, caused by cost pressures and public resistance in the form of political and environmental hurdles.
Longer term, industry's greatest hurdle will be gaining access to gas reserves to feed new liquefaction projects, said Harris. Despite the large amount of known but undeveloped gas, development of many reserves for export must compete with domestic demand growth and distance obstacles: Pipeline capacity is nearby or fields are prohibitively far from seas and oceans, LNG's transport media.
"Players must therefore decide how to combine exploration for additional reserves with exploitation of available 'known' reserves," Harris said.
Harris sounded another theme in common with Marican: With NOGCs controlling the great majority of the world's known reserves, international oil companies' efforts to secure supply from these reserves complicated by NOGCs' wish to retain some reserves to meet growing domestic demand.
When access is possible, he said, IOCs often find less attractive terms are available, a fact that reflects NOGCs' desire to retain value and a generally increased competition for reserves access.
NOGCs, said Harris, seem increasingly prone to work with each other rather than with IOCs. They have less need for the "technical and capital capabilities" of IOCs.
The overall effect of this evolution in NOGC vs. IOC competition is a "renewed focus on exploration," Harris said. IOCs are looking to new areas that "are not controlled by a strong NOGC." They are willing to trade higher "subsurface risk" for lower "aboveground risk."
In the reality of this evolving natural gas world, LNG players must ensure exploration is a key part of their strategy. Indeed, small exploration and development companies will likely play a critical role in the evolution of the LNG business.
Contact Warren R. True at email@example.com.