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Financial Times: Gas is key to future growth of oil groups

By Sheila McNulty in Houston
Published: March 2 2008 18:42 | Last updated: March 2 2008 18:42

The world’s international oil groups are turning to gas for future growth after increasingly being blocked by national companies from pursuing oil opportunities.

Gas-centred deals such as Chevron’s 2005 acquisition of Unocal, ConocoPhillips’ 2006 purchase of Burlington Resources and Eni’s buy-out of Dominion’s assets in the Gulf of Mexico last year underline the change in strategy.

Demand fuels oil industry confidence – Feb-20The shift is forcing large oil companies to adapt their approach to the business that has generated the bulk of their profits for more than a century.

As state-owned oil groups have taken control of more than 80 per cent of the world’s oil reserves, the share of gas in international companies’ reserves has expanded from 39.5 per cent in 2003 to 44 per cent in 2006, according to a report by PFC Energy, the consultancy.

International oil companies dominate big parts of the gas value chain, and are still being sought after as partners for new projects in countries ranging from Qatar to Iran.

“Gas is the segment where the international oil companies are still indispensable,” said Robin West, chairman of PFC Energy.

According to PFC, international companies or utilities own 49 per cent of the world’s liquefaction capacity, both existing and under construction, and 72 per cent of its re-gasification capacity.

Nikos Tsafos, analyst in PFC’s Global Gas Group, said international groups have an edge in gas because of the specialised technology and project management skills required for the massive projects involved; the reassurance they provided bankers in projects costing $10bn to $20bn; and their access to markets.

National companies have the cash and skills to manage many conventional oil projects, allowing them to force international groups into minority positions – or completely out of projects they would have once dominated.

But even Venezuela, which has taken a hardline position on the nationalisation of its oil projects, still looks to international companies such as Chevron and ConocoPhillips for help on gas export projects.

Only Algeria and Libya have liquefied natural gas projects wholly owned by their national oil companies.

John Gass, president of Chevron’s Global Gas group, said natural gas is projected to be among the fastest growing segments of the Chevron energy portfolio. Chevron owns the biggest natural gas resources in Australia, and has significant holdings in west Africa, Asia, the Caspian region and Latin America.

“The natural gas business we’re building today will shape what Chevron looks like 10 years from now,” he said.

Jim Mulva, chief executive of ConocoPhillips, said US energy policy should include expanding the role of natural gas, noting much of the US potential for natural gas lies in areas off-limits. Such restricted areas run from the Rocky Mountains to Alaska.

Copyright The Financial Times Limited 2008

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