SHELL PREDICTS RISING GAS IMPORTS FOR EUROPE

Europe will need to develop more long haul gas imports to meet growing demand for the fuel during the next 20 years. Roland Williams, managing director of Shell International Gas Ltd., said the money required to satisfy Europe's growing appetite for gas during the period could top $170 billion in real terms. He reminded the Sixth European Gas Conference in Oslo, Norway, that developing remote gas reserves is not only expensive it also is a very slow process.

June 3, 1991

4 min read

Europe will need to develop more long haul gas imports to meet growing demand for the fuel during the next 20 years.

Roland Williams, managing director of Shell International Gas Ltd., said the money required to satisfy Europe's growing appetite for gas during the period could top $170 billion in real terms.

He reminded the Sixth European Gas Conference in Oslo, Norway, that developing remote gas reserves is not only expensive it also is a very slow process.

"That means most of the investment required to keep up with gas demand growth during the next 20 years will have to be triggered in this decade--and a lot of it in the next few years," he said.

MARKET OUTLOOK

Assessing the gas market outlook for western Europe, Williams said a business as usual, low growth scenario would see only a 15% increase in demand. That contrasts with a 55% increase if the "green world" outlook proves correct. In the latter case, there would be significant substitution of gas for oil and coal to minimize carbon dioxide emissions.

Western Europe imports 30% of its gas from the U.S.S.R. and North Africa. Eastern Europe imports about 45%, all from the U.S.S.R.

Despite increased production from Norway, more imports from outside Europe will be needed, Williams said. By 2010, Europe as a whole might need to import more than 60% of its gas.

Europeans are fortunate to have access, at least technically, to huge gas reserves, Williams said. Proven reserve life of Europe, the U.S.S.R., Middle East, and North Africa is more than 80 years and growing. Williams said the key issue for Europeans is not supply but diversity of supply. All the gas required for many years is available, but Europeans should not put too many eggs in one supply basket.

Williams acknowledged that the Soviets have been reliable suppliers to western and eastern Europe since the mid-1960s and have about 25% of the combined market. But he asked whether the Soviets can continue spending massive amounts of money required to expand gas production in the face of almost endemic political and economic crisis.

He also questioned their ability to keep operational an infrastructure badly needing repair and modernization and wondered whether the new environmental awareness in the U.S.S.R. would delay or halt further development of gas megaprojects in the fragile arctic environment.

He voiced doubts about whether the Soviets would be happy to continue developing Siberian gas and selling it to Europeans for less than the real cost of supply, which by Shell's estimates could soon exceed $4/MMBTU.

Questions like those underline the growing uncertainty about the future of Soviet gas supplies into Europe.

Algeria, the Middle East, and the Atlantic basin all have potential to provide more gas to Europe. And in the case of the green world scenario, gas consumed in Europe in 2010 would have to travel 75% farther from wellhead to burner tip than it does today.

PRICE GOING UP

Europeans have to learn to pay more for secure gas supplies as the Japanese have, Williams said. Some European power generators have decided to obtain long term supplies from remote regions and prepared to pay more than existing and predicted oil product parity. Williams said the European market must realize it needs to move quickly and decisively to secure new long term supplies.

"In this respect," he said, "reticence in recognizing the inevitable in gas pricing dynamics would be an unfortunate and perhaps critical frustration to the necessary progression of the European downstream industry."

Williams also warned that market distorting legislation such as regulated third party access would impede development of Europe's long term gas supplies.

While European consumers will have to pay higher prices, they should never pay more than they absolutely have to. The supply industry's focus should be on reducing costs to a minimum through development of new and cheaper technologies.

At the same time, Williams said, host governments must provide a fiscal regime that encourages investment and possibly guarantees to secure financing.