Natural Gas: The Global Revolution
In recent years it has become clear that the vast resources of both conventional and unconventional natural gas reserves in place will see it dominate the energy mix over the next century as these reserves are exploited and brought into production. The drive to develop these reserves is coming from a substitution effect as a result of high oil prices and a move away from the use of both coal and nuclear energy. Although reserves in place are significant, estimated at 208 tcm by BP’s annual statistical review, estimates of recoverable reserves are in flux and not properly understood. Huge finds announced in relatively unexplored areas like Mozambique and both conventional and unconventional resources have seen material revisions – up and down – in countries such as Poland, and even the United States (US).
Whilst the development of unconventional natural gas has proceeded at an extraordinary pace in the US, it should be remembered that it has the largest volume of land drilling equipment and services available domestically compared to any other country in the world. Speaking at the Gastech 2012 event in London recently, Steve Robertson of energy business analysts Douglas-Westwood noted that, “with the possible exception of China, it is difficult to see how the US unconventional gas development could be replicated elsewhere in the world within the next ten years. Supply chain constraints, uncertainty over long-term production levels and political issues are the biggest problems.
“Furthermore, we are seeing the emergence of vast conventional gas resources, albeit offshore, that will offer a more predictable long-term source of supply. Europe will have the option of accessing natural gas from recent conventional finds offshore locations such as Israel and East Africa. In excess of 100 tcf has been discovered in Mozambique and Tanzania alone – equivalent volumes to the world’s current annual natural gas consumption. After the developments seen in Qatar and Australia, East Africa has the potential to be the next big LNG province.”
Whilst the conventional reserves in place are vast, development will be technically complex; in East Africa the finds are in water depths ranging from 800m to over 2,000m. An LNG export development will inevitably mean a construction ‘megaproject’ running to tens of billions of dollars.
The challenge of how to access the substantial volumes of conventional offshore natural gas reserves is bringing new technology to the fore. Floating LNG is the current favoured option for export from Israel’s Tamar project and follows commitments by both Shell and Petronas to proceed with construction of FLNG vessels. Analyst, Murray Dormer, at Douglas-Westwood commented that, “With the commencement of construction of Shell’s first FLNG unit, we can consider the technology now an accepted solution. We forecast that over $28 billion (bn) will be spent on FLNG liquefaction over the 2013-2019 period. Declining local production and seasonal demand will in some markets lead to a rise in import terminal Capex ($19.1bn). Economic growth is driving electricity demand occurring in the developing world. Therefore, Asia will be a focus region for both liquefaction and regasification terminals between 2013 and 2019, accounting for 35% of the $47.4bn forecast for the entire FLNG sector.”
Whilst there remains considerable uncertainty at a project-by-project level and caution is required in assessing longer-term markets, it is clear that the inherent complexity in future natural gas developments will be a key growth opportunity for equipment, engineering and services providers.