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MarketWatch: Shell CEO says natural gas prices must be kept competitive

AMSTERDAM (MarketWatch) — The future of the global natural gas industry is “relatively strong”, but companies must keep the price of the fuel competitive, Royal Dutch Shell Chief Executive Joroen van der Veer said at a conference in Amsterdam Tuesday.

Van der Veer said global gas consumption will continue to be “relatively strong,” noting he expects it to grow more than 2% a year.

He said gas is still increasing its market share faster than other generating fuels, but noted the global gas market faces many changes, including the increasing need for it to cross borders in order to reach end users.

These changes, which also includes higher costs of production as gas is sourced from increasingly hostile environments, are a challenge to the industry, he said, but firms must keep the price of the fuel competitive.

By 2030, 80% of European gas will be imported, he predicted, piped to Europe from the Middle East, North Africa and the Caspian region, he said.

The CEO noted the increasing length of sub-sea gas pipelines, citing the Ormen Lange pipeline, which will carry gas 1,200 kilometers from Norway to the U.K., and the planned Russian-Baltic pipeline and pipelines from the Middle East to the Caspian.

“There’s a lot going on with those very long pipelines. If you look at a gas map of the world,” its a kind of ‘spaghetti pie.’

Van der Veer said the passage of liquefied natural gas, or LNG, will be “even more spectacular.”

Amongst other regions, gas will come from Malaysai, Brunei, Algeria and Russia will export LNG to the U.S. Van der Veer said, noting LNG is more competitive over longer distances than piped gas.

Despite the rapid growth of both pipeline and LNG markets globally, Van der Veer predicted gas markets “will not grow as quickly as the oil market.” Nor is it yet time to talk of a global gas price, he added.

The huge capital sums involved in gas projects present a challenge in developing gas reserves, and mean suppliers and consumers must have long-term relationships, he said. There is “a lot of inflation in the industry,” for example due to the cost of rising steel prices. He added: “We think the gas to oil (price) coupling has worked very well,” helping to prevent price spiking.
 
Van der Veer pointed out that gas doesn’t have a monopoly over power generation. “Power generation can come from alternative energies,” he said, adding that once coal power stations are built, it’s not that easy to switch back to gas generation, he said.
 
“We have to make sure that people make long-term choices which are favorable to gas,” he said.

The industry needs knowledge and relationships because of the difficulties faced in creating a secure future for gas production and consumption, “it needs complete value chains,” he said.

“There’s a very good future for gas, oil companies can help with their knowledge, governments set the framework…you can’t do it on your own, it’s all about confidence and trust,” Van der Veer concluded.

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