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Why liquified natural gas could spell an end to the Age of Oil

The Sunday Telegraph: Why liquified natural gas could spell an end to the Age of Oil

Sunday 06/06/2004

It may sound like an unorthodox opinion for an oil industry executive to hold, but Malcolm Brinded, the head of exploration and production at Royal Dutch/Shell, predicts that gas could overtake oil as the global number one fuel of choice by 2025.

Recent soaring crude prices on the back of concerns over the security of supply – last week’s agreement between Opec ministers to hike production has done little to dampen prices – have only underlined how volatile the oil market can be. According to many, therefore, there could be no better time for gas to make its case.

“Oil will remain king in the transport sector, but the problem is that these spikes in the oil price have given the anti-oil lobby again the impression that oil is an unstable, insecure product,” says Philip Lambert of Lambert Energy Advisory.

“The fuel that wins is the one that appeals as the most user-friendly to the consumer on price, environmental acceptability and on appearing to be a stable, secure product. My view is that on almost all these aspects, gas will win in its key sectors, notably domestic use and electricity generation,” he adds.

Forecasts for worldwide energy demand over the next 20 years show that demand for gas will grow about 50 per cent faster than demand for oil. What is driving this demand is not just the properties of gas, but also the realisation in Europe and the US – both blessed with indigenous supplies – that they will become increasingly dependent on imported gas in the future.

According to industry executives like Brinded, the greatest area of growth is liquified natural gas (LNG). Frank Harris, the director of gas and power at Wood Mackenzie, the consultancy, forecasts that global demand for LNG will grow at almost 8 per cent a year between 2003 and 2015, with possible double-digit growth rates in the near term.

Using a process that dates back to the 1960s, energy companies supercool natural gas into LNG so that it can fit into a tanker and be shipped overseas. At the other end a regassification terminal turns the liquid back into gas, ready to be transported by pipeline to cities.

Analysts predict that companies will need to invest as much as $100bn in LNG in the next decade to keep up with demand from Asia, the US and Europe.

BG, the UK independent energy group, has enjoyed impressive earnings growth over the past few years on the back of its LNG interests. It was responsible for the renaissance of the Atlantic Basin as a source of LNG in the 1990s and operates terminals around the world, notably at Louisiana’s Lake Charles in the US. Last year, the company accounted for 53 per cent of all LNG imports into the US.

Martin Houston, the managing director of Global LNG, says BG is “spending capital in significant quantities” on LNG capacity but won’t say quite how much (analysts at JP Morgan forecast the company will plough as much as £1.5bn into its division between 2003 and 2008).

The current enthusiasm for LNG is, however, tempered by concerns about the cost of providing the new infrastructure and one flaw in the argument for the fuel. Its price is supposed to be less volatile than oil’s, but at the moment it is tracking the oil price pretty closely, notably in Europe – hurdles which it will have to clear if it is to overtake oil as the fuel of choice.

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