Global energy outlook becoming redefined by natural gas

By Stephany Romanow

HOUSTON -- Natural gas is the fastest growing hydrocarbon-based energy resource; this is the consensus of the recent Rice University Baker Institute’s Geopolitics of Natural Gas Forum.

Mark Finley, BP’s general manager of global markets and US economics, commented that the outlook for the energy industry is being redefined by natural gas.

Sufficient supplies

Natural gas does have sufficient supplies. In North America, the shale gas phenomenon is proving that point. Shale gas has the potential to be 21% of the US natural gas supply. Much of the US natural gas supply will be directed to power generation for the mid-term.

In contrast, China’s demand for natural gas continues to increase. According to BP’s 2014 energy outlook, China will consume the same volume of Natural gas as Europe by 2035. Imports and trade will be vital to satisfying China’s need for natural gas. Imports will be met by pipelines from the Former Soviet Union and LNG.

The ‘real’ experiment in economics

Finley remarked that a “real” experiment in economics is happening in North America. In energy markets, a “real” experiment entails taking an isolated economy, dropping in a new substantial energy supply and witnessing what develops. In this case, the isolated economy is the US economy and the new energy source is shale gas. In 2003, nearly 75% of the US drilling rigs were searching for natural gas, which was deemed in short supply and that LNG imports would be needed by 2008. Today, drilling operations are searching for oil, which hovers close to $100/bbl.

In the US, the change in natural gas supplies developed in short notice. The investments to use the new domestic supplies are influenced by available infrastructure.

Power→ Industry→ Transportation.

Demand for electrical power is increasing for all nations, developed and developing. In the US, the power industry had sufficient capacity to readily handle the abundant natural gas supplies and reacted quickly to convert from coal to natural gas. The industrial sector has a longer reaction time. Investments for new petrochemical facilities have been announced, but, grassroots facilities will need several years to move through engineering, permitting and construction phase.

Even more time will be needed to integrate natural gas into the transportation industry. Construction of distribution and retail centers and conversion of the vehicle fleet from gasoline and diesel is a longer term task. New technologies for engine conversion kits and LNG fueling stations are being researched and developed. Acceptance by consumers will take time.

2035: No dominant energy source

The energy mix is changing over the long term, according to Finley. However, fossil fuels will remain the dominant energy resource in the future and hold 80% of the energy mix by 2035. Crude oil, natural gas and coal will be evenly split the energy market. At that point there will be no dominant energy form.

Growth in the energy market will continued to be influenced by technology/innovation, market competition and government energy policies.