“Greater CO2 reduction at lower cost”—was the message from Rob Franklin, President of Gas & Power at ExxonMobil, who gave the opening presentation at the Natural Gas conference of IP Week in London. A simple and clear statement on the benefits of natural gas backed by impressive statistics: from 2010 to 2015, U.S. reduced CO2 emissions from power generation by 15 percent combined with a 70 percent fall in natural gas prices between 2008 and 2015, compared with Europe where CO2 emissions have fallen 9 percent (and by only 3 percent in Germany), but electricity prices are 2x those in the U.S.
With China’s LNG imports exceeding 2016 levels by ~25-30% to ~25MT, the number of countries importing LNG growing to ~40 in 2017, and the talk of growth in the use of natural gas in bunker fuels and transport, demand for natural gas is clearly growing. Patrick Allman-Ward, CEO of Dana Gas, provided an overview of the Middle East countries’ COP 21 commitments and the growth in LNG imports in Kuwait, UAE, Egypt, and Jordan since the politics, policies and pricing make intra-region pipeline gas trade challenging. Andrew Walker, VP Strategy, of Cheniere Marketing shared how cargoes exported from Cheniere’s Sabine Pass Liquefaction facility were delivered to 14 out of the 38 LNG importing countries in 2016.
But along with the gas growth story, the speakers, who represent the entire value chain of buyers (Jera), producers (ExxonMobil, Shell), new players (Cheniere), traders (Vitol), new markets like the Middle East (Dana Gas), financiers (Societe Generale), and engineering/equipment (Siemens), did not shy away from discussing controversial topics:
LNG buyers are expanding their footprint and want different contract terms. Hendrik Gordenker, the Chairman of Jera, showed how Jera is increasing its involvement across the value chain and wants flexible destination contracts
Uncertain natural gas demand outlook in India. India is second only to China in its importance to the future size of the natural gas market, but, as Rob Franklin pointed out, coal currently fuels 80% of India’s electricity. Natural gas prices are competitive today compared with naphtha, LPG and diesel but not coal. The role of a carbon price/tax will be highly influential on the future power generation fuel mix
US LNG could keep the market well stocked. Andrew Walker shared a chart with the current status of LNG projects: 13.5 mtpa online/commissioning, 53.5 mtpa under construction, and over 300 mtpa proposed. The global LNG market in 2015 was 245 mt
Gas prices could stay low. Pablo Galante Escobar, the Global Head of LNG for Vitol had three messages: LNG could move into a structural surplus; U.S. and European Gas prices will converge, and new markets could take longer than expected to develop
Natural gas must compete with cheaper coal and cleaner renewables with falling LCOE, illustrated in a chart that Hendrik Gordenker shared on the LCOE (levelised cost of electricity) in China and India for comparative fuels.
Appropriately, the closing topic was on how technical and commercial innovation will improve natural gas’ competitiveness. Alexander Boekhorst, Shell’s VP Programmes and Innovation Integrated Gas, explained how Floating LNG (FLNG) enables the industry to monetize resources traditionally challenging to develop by using plants ¼ the size of a traditional plant. He also shared that GTL (gas to liquids) expands the use of natural gas into other liquid fuel products with cleaner burning properties. Dan Kinsey, VP of Global LNG for Siemens, talked about the impact on project competitiveness that collaboration with customers in the early stages of development could make. Roberto Simon, Managing Director and Head of Natural Resources & Infrastructure at Societe Generale, explained the innovations in energy finance (e.g., use of the bond markets, taking a portfolio vs. individual view of buyers, etc...) that are supporting the development of new players and LNG infrastructure in new markets.
“Shaping the Gas Landscape” was the theme of the IP Week gas conference, and it brought to life the fact that the “shape” of the gas market will largely be determined by the open and honest dialogue of the players across the natural gas value chain.