WORLD GAS OUTLOOK: TEMPERED OPTIMISM

Concerns about capital supply, market prices, and politics tempered optimism over future international gas trade at the 18th World Gas Conference July 8-12 in Berlin.

Speakers generally agreed with projections for strong gas demand and trade growth as gas displaces oil and, to some degree, nuclear power.

But the growth won't be automatic.

Klaus Liesen, chairman of the executive board of Germany's Ruhrgas AG, estimated gas demand in Europe will rise from 300 million metric tons/year of oil equivalent at present to 400 million tons/year early next century. But he warned the growth shouldn't be taken for granted.

Gas prices must remain competitive, he said. And gas might not displace lignite and hard coal to the great extent expected in eastern Europe because modern power plants can burn those fuels much more cleanly than their predecessors.

Nevertheless, Europe will need more gas from elsewhere in the next century, requiring investment of perhaps $100 billion outside the gas consuming centers of western Europe by 2005.

The investment may prove difficult.

If crude prices only track inflation in the next decade, Liesen said, some currently planned gas export projects won't be economic.

And the projects will have to compete for funds in a capital market tightening due to U.S. government budget deficits, inability of traditional capital suppliers to invest abroad at previous rates, and the urgent capital requirements of eastern Europe, the U.S.S.R., and developing countries.

In such a market, Liesen said, "it is by no means certain that gas projects will be given favored treatment."

WHAT'S REQUIRED

To meet their challenges, Liesen said, gas companies must continue to reduce costs and tighten capital budgets.

Natural gas importers must be willing and able to offer producers long term, take or pay commitments.

Importing countries must allow markets to function so gas realizes its full value. And the European gas industry should be prepared to make upstream commitments where necessary to bring gas to market, even to the point of developing reserves abroad.

For their parts, Liesen said, governments must resist the urge to tax gas at maximum rates. They should subordinate fiscal policy to energy and environmental policy instead.

Liesen opposed a proposal before the European Commission to provide third party access to pipelines, which he characterized as an effort to turn gas pipelines into common carriers.

He called for a pan-European right to build pipelines and to import and export gas, eliminating "the present considerable national discrepancies in these respects."

And he supported the proposed European energy charter, topic of meetings in Brussels aimed at European energy cooperation.

GAZ DE FRANCE OUTLOOK

Support for the energy charter also came from Francis Gutmann, chairman of Gaz de France, who appealed for producer-consumer dialog concerning natural gas.

Like Liesen, Gutmann expressed concern about the sufficiency of investment capital for large projects needed to support anticipated international gas trade.

Gutmann said the market needs long term contracts. "We can't afford to fragmentize demand," he said.

"There is no truly international gas market, but the market is becoming more international, less compartmentalized."

Gutmann said the long term future of natural gas is linked to the LNG industry but pointed out that LNG will account for no more than 7.5% of world natural gas demand if predictions hold that the LNG share doubles in the next 20 years.

And LNG's future, the Gaz de France chairman said, depends on:

• Optimization of the LNG chain, mainly through increased flexibility in long term LNG sales agreements.

• Confidence in the long term stability of prices at levels that repay costs and still allow gas to compete in markets at the point of consumption.

• Advances in LNG engineering to reduce costs of plant and equipment, now the largest impediment to expansion of LNG trade.

Among other speakers, William T. McCormick Jr., chairman and chief executive officer of CMS Energy Corp. and chairman of the American Gas Association, predicted "a renaissance of gas" in the U.S.

He said natural gas might displace 1.7 million b/d of oil within 10 years, replacing oil in vehicles, power generation, and industrial, commercial, and residential markets.

The displacement could mean converting from oil to gas 5 million households, 375,000 commercial buildings, 50,000 industrial boilers and process units, 100 power plants, and 1.9 million fleet vehicles.

In a press conference, AGA Pres. Michael Baly predicted an end to wide seasonal swings in U.S. gas demand. Increased vehicle use of gas, inroads of the fuel into power generation, and the advent of gas cooling will boost demand in what now are gas off-seasons.

"We will become a flat market," Baly said, providing a steady "demand pool" for U.S. producers.

"We have to quit living off the spot market," he said.

SOVIET GAS INDUSTRY

In the Soviet Union, gas production in the next 20 years will total about 20 trillion cu m, while reserves will remain at the current level of 51 trillion cu m predicted Victor S. Chernomyrdyn, chairman of the new state gas concern Gazprom.

But exploration and production will be more difficult and costly than before because discoveries and production will occur at increasing depths, increasingly offshore. In addition, the gas will require more treatment and processing.

Chernomyrdyn expects reserves in western Siberia to increase by 15 trillion cu m by 2010. In the northern part of the region, mainly on the Yamal Peninsula and in the Nadym-Purtazovo region, he expects production to increase by 300 billion cu m/year to 850 billion cu m by 2005.

Yamal, he said, holds reserves of 9 trillion cu m and potential resources of 16 trillion cu m onshore and 13 trillion cu m on the peninsula shelf.

In the Nadym-Purtazovo region, the U.S.S.R. will have to place 14 gas fields on production within the next 15 years. Only one, Zapolyarny, can produce as much as 100 billion cu m/year.

Soviet hopes are high for gas production from the Caspian region, eastern Siberia, and the Far East.

The Caspian region is close to gas consumption centers, but the gas contains liquids, sulfur, and helium and thus requires treatment and processing. Much of it is in complicated, low permeability reservoirs under unusual temperature conditions.

In the Far East and eastern Siberia, potential resources are estimated at more than 48 trillion cu m, with reserves estimated at 1.6 trillion cu m.

Chernomyrdyn said the volume of processed gas will double during the next decade, with ethane extraction reaching at least 70% and propane-butane extraction at least 80-90%.

In 1990, the Soviet gas industry treated 135 billion cu m of gas. Targets are 200-220 billion cu m in 2000 and 280-300 billion cu m in 2010.

Ethane production is to grow from 1 million metric tons in 1990 to 4.4-6.1 million tons in 2000 and 7-11 million tons in 2010.

Production of what Chernomyrdyn called the "wide fraction of light hydrocarbons and unstable gas gasoline" will increase from 13.7 million tons in 1990 to 22-28 million tons in 2000 and 23.5-32 million tons in 2010.

Sulfur production will increase from 7.1 million tons in 1990 to 17 million tons in 2000 and 18-19 million tons in 2010.

Dry gas plant output will increase from 117.2 billion cu m in 1990 to 150-170 billion cu m in 2000 and 185-210 billion cu m in 2010.

And production of liquefied gases will grow from 4.5 million metric tons in 1990 to 9.5-11 million tons in 2000 and 12.3-14 million tons in 2010.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.