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Game On for Natural Gas

oil v gas

Global gas demand is projected to grow by at least 1.6 per cent year on year over the next 25 years, which will be more than enough to propel gas’s share of the world energy markets to over 25 per cent by 2040 according to a startlingly bullish assessment delivered by the Gas Exporting Countries Forum (GECF).

“There is going to be a decisive shift in the geopolitical center of gravity towards Asian markets with emerging markets, in general, acting as the primary dynamos of economic growth.”

Seyed Mohammad Hossein Adeli, General Secretary, GECF

Speaking at the Annual European Gas Conference in Vienna, GECF General Secretary, Seyed Mohammad Hossein Adeli, spoke of a series of mega-trends underway that are impacting world gas dynamics. “Our forecasting is telling us that there is going to be a decisive shift in the geopolitical center of gravity towards Asian markets with emerging markets, in general, acting as the primary dynamos of economic growth. Gas meanwhile looks firmly on course to consolidate its position as an essential part of the energy mix as nations abruptly ready themselves to power these growth spots, while at the same time striving to deliver on COP21 climate change commitments,” he confidently declared.

Screen Shot 2017-02-03 at 11.51.24

Source: GECF

Indeed, according to the organization’s freshly published and eagerly awaited ‘Global Gas Outlook 2040,’ the first such study of its kind, global gas demand is set to outpace primary energy demand in 2015-40, with the bulk of supply stemming from Asia, North America and the Middle East, and an additional annual 100 million tonnes of liquefied natural gas (LNG) coming on stream within only the next couple of years. Gas use in the power sector is meanwhile projected to pace at 2.2 per cent per annum taking the hydrocarbon’s share of the total to in excess of 40 per cent by 2040. “This Outlook follows the completion of our Global Gas Model that has been running for a number of years and represents the first and only energy comprehensive model based on natural gas… as such we are extremely hopeful that these findings are going to penetrate the minds of political circles in a big way,” exclaims Adeli.

“If you consider oil relations as dating, gas relations are more akin to marriage: they require strong financial backing, enduring commitment and prior planning,”

Seyed Mohammad Hossein Adeli, General Secretary, GECF

Despite the rosy growth trajectory, global gas markets do risk becoming more volatile in the years to come, however, especially if the low price environment continues to deter investment in new supply projects. “Unless cumulative investments to the tune of some $8 trillion in upstream gas and transportation can be identified before 2040, then the world could well start encountering significant security of supply woes that would shoot up the demand side and destabilize prices,” he warned. “If you consider oil relations as dating, gas relations are more akin to marriage: they require strong financial backing, enduring commitment and prior planning,” he mused.

Screen Shot 2017-02-03 at 11.52.14

Source: GECF

As the major gas producers of the world begin to assert themselves more forcefully, The GECF can, itself, expect to accumulate more influence, with some commenters already describing the association as an “embryonic counterpart” to the oil cartel, OPEC. Indeed, representing no less than 11 of the world’s leading natural gas producers including heavyweights Iran, Qatar and Russia, GECF members can legitimately claim to control some 42 per cent of total global supply of gas, 70 per cent of proven reserves and 40 per cent of supply through pipelines. Despite the enormity of these figures, however, any moves to transform the organization into an effective international cartel that could exert tangible influence on the price-formation mechanism in the market for natural gas would be difficult to accomplish. Firstly, the inherent challenges of transporting gas efficiently has led to the proliferation of simultaneous regional gas markets instead of a single, unified, global one and this registers little sign of changing with the GECF’s own modeling suggesting “the continuity of a regional development pattern with little genuine integration”.

Secondly the strategic orientations of major gas producers continue to differ markedly: actors who are reliant on pipeline exports under long-term contracts like Russia are firmly in favoring an oil-indexed price system, while the heavyweight LNG exporters like Qatar logically continue to advocate spot prices. In the words of Adeli, “Right now it is not within the remit of the GECF to be setting quotas on gas… our objective is to support the sovereign rights of member countries over their natural gas resources for the benefit of their peoples… we act as an instrument for decision making, but ultimately let our members themselves define their own individual policies.” It remains to be seen how long this status quo endures.

Writer: Louis Haynes

IMG_20170124_130748 (1)

GECF General Secretary Seyed Mohammad Hossein Adeli talks to Energy Boardroom’s Louis Haynes at the European Gas Conference in Vienna (Jan. 2017).

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