WGC: Growth in gas trade faces range of challenges

June 12, 2006
Natural gas must overcome economic, technical, commercial, and political challenges if it is to expand its role in meeting global energy needs.

Natural gas must overcome economic, technical, commercial, and political challenges if it is to expand its role in meeting global energy needs.

Royal Dutch Shell PLC Chief Executive Jeroen van der Veer opened the World Gas Conference June 6 in Amsterdam with that keynote message.

A later WGC session presented diverse views on the issue of gas interchangeability.


Van der Veer said the industry must “produce much more gas [and] deliver it to many more customers over greater distances” to meet expectations that interregional gas flows “could expand nearly threefold.”

Shell, Van der Veer said, expects global gas consumption to grow by more than 2%/year, exceeding projections by the International Energy Agency for overall energy demand growth of about 1.5%/year.

Shell also expects LNG demand to increase by as much as 10%/year through 2020. The company’s target for its own LNG business is 14%/year growth from 2004 to 2009.

Cost competitiveness is driving LNG expansion, he said, citing the recently completed Qalhat LNG train in Oman whose engineering, procurement, and construction contract cost less than $150/tonne/year. That was “probably the lowest ever.”

Gas-to-liquids is the other gas technology whose wider use will drive natural gas demand. Van der Veer said Shell expects to make a final decision very soon on its Pearl GTL plant in Qatar. And he called attention to IEA’s projection that GTL “could account for 2% of world oil supply by 2030.


But huge challenges remain.

Among them is the economic challenge of competition. Despite growth in natural gas demand, very high gas prices “could prompt power investors to consider alternative fuels,” Van der Veer said.

And the industry must overcome technical challenges such as harsh surface conditions, difficult geology, contamination by H2S and CO2, unconventional resources such as coal and shale, and the need to lay pipelines in harsh or subsea environments and over long distances.

Larger LNG trains and carriers will continue cutting the cost of moving gas over great distances, said Van der Veer, noting that Qatar has ordered six LNG carriers of 265,000 cu m each, “75% larger than the largest operating today.”

Commercial challenges arise from the “scale and market impact” of major projects. These can be met, he said, by “deep knowledge” of the market, trust of customers, and the “courage to invest early in strategic infrastructure.”

Gas trade also faces a political challenge as “import dependency increases and energy prices are more volatile.” Governments have a vital role, he said, in “ensuring that there is the transparent, predictable and secure framework” that allows customers and “suppliers to invest and customers to make commitments.”


If the LNG industry were not already wrestling with major commercial and technical issues as it builds trains that approach 8 million tonnes/year and vessels so large that berths of several existing terminals cannot accommodate them, the thorny issue of natural gas interchangeability has set supplier against customer, region against region, and regulator against the regulated.

A well-attended session on the subject heard about recent research that attempted to sort the viewpoints and help LNG producers, end-users, and regulators find common ground.

Ted A. Williams, director for codes, standards, and technical support at the American Gas Association, which is made up of mostly local distribution companies, reported on efforts of the Gas Interchangeability Task Group to develop recommendations and interim guidelines. These were presented to the US Federal Energy Regulatory Commission (OGJ Online, June 5, 2006).

Work of the group rendered what Williams called a list of “interchangeability research priorities,” among which:

  • Office of Fossil Energy in the US Department of Energy should lead federally sponsored research on interchangeability.
  • DOE should implement projects on gas turbines used in power generation and industrial applications.
  • The DOE should conduct analyses to forecast future gas compositions available in the US and identify the gas specifications used by other countries.

An example of how one country is dealing with the issue was presented by Michael J. Winstanley of BP Gas Power & Renewables, speaking about the UK.

Twin drivers behind his work were that the UK government had ruled out changes in the UK gas specification and that the UK must attract LNG supplies that meet local gas-quality constraints expected to remain in force.

Installation of LNG quality-adjustment equipment at the Grain LNG terminal, said Winstanley, was necessary to enhance the terminal’s ability to attract LNG from the most sources.

Of three options considered for dealing with possibly high-btu imports, ballasting with nitrogen was chosen because, he said, it was the “only practical solution to gas quality adjustment at the Isle of Grain.”

The final solution, said Winstanley, was “a mix of long-term commitment for on-site nitrogen generation plus short-term peak supply using trucked-in nitrogen.”