DREWRY: GAS SHARE OF WORLD ENERGY TO INCREASE

Gas could well account for 25-30% of world primary energy supply by 2010, predicts Drewry Shipping Consultants Ltd., London.

Since 1980, when gas met 19% of world energy demand, gas has captured market share from coal and oil, reaching 22% in 1990. The "most environmentally friendly fossil fuel," says Drewry, will record further gains in the coming decade at the expense of other fossil fuels and nuclear power.

Gas is being discovered at four times the rate of production, yet Drewry concludes that supply might still pose a problem. Long project lead times and massive capital requirements mean that gas pricing is crucial to development.

"It remains to be seen whether end users will accept higher costs," Drewry said, "although there is a school of thought that suggests prices will creep up as demand begins to nudge supply. Longer term, however, gas prices may have to be decoupled from oil to ensure industry prosperity."

Meanwhile, rising demand and long distances between areas of supply and consumption mean that more gas is being traded across international borders. More than 246 billion cu m (8.687 tcf) moved by pipeline in 1991, up 50% from 1985. LNG trade in 1991 was 72.2 billion cu m (2.549 tcf), an increase of 52% from 1985.

"With gas use increasing all the time, trade looks set to continue to expand, especially in the form of LNG," Drewry said. "Even the more conservative estimates suggest LNG movements could triple by 2010."

Drewry predicts an increase of about 230% during 1990-2010, pushing LNG trade to 170 billion cu m (6.003 tcf) from 72 billion cu m. For pipelines, the projected increase during the same period is 66%, implying an increase in total movements to 410 billion cu m (14.479 tcf) from 246 billion cu m.

LNG FLEET GROWTH

Fleet owners have placed orders totaling $4 billion dollars for 20 LNG carriers since early 1990. Expansion of existing contracts, development of new projects, and replacement of aging tankers could lead to more orders for LNG carriers by the end of this decade.

Currently the fleet of 71 vessels has a combined capacity of 7.4 million cu m. The 20 newbuildings will range in capacity from 18,000 to 130,000 cu m.

A new 125,000 cu m LNG tanker, which would have cost $120 million from the Far East late in 1986, now costs $270-280 million.

This price rise will place new LNG export projects under close review and encourage ship owners to prolong the lives of their fleets.

LNG MARKETS

Drewry breaks most of the world LNG markets into Atlantic and Pacific Basin regions.

In the Atlantic, LNG competes with locally produced gas and pipeline supplies, which are cheaper. That makes price critical to development of the Atlantic Basin LNG market.

Algeria and Libya could be joined by Nigeria, Venezuela, and Qatar toward the end of the decade as suppliers to the U.S. and European LNG markets.

In the Pacific Basin, there is less indigenous production and fewer pipelines, while demand for LNG in Japan, South Korea, and Taiwan remains strong. Indonesia, the region's largest LNG producer and exporter, has yet to reconcile the conflicting demands of an expanding domestic market and gas hungry LNG importers.

Drewry said, "Fears over future availability of LNG have been fueled by British Petroleum Co. plc's recent withdrawal from the Qatar project, which could delay the start-up date. Oman, Indonesia's Natuna Island and the Yukon Pacific projects may offer a lifeline, but all are liable to require a new gas pricing system to support high investment costs."

In the meantime, Drewry said it would not be surprising to see shipments from Algeria to Japan and increased liftings from Australia's Northwest Shelf project when shipping becomes available.