Oil majors look to gas in response to fossil fuel bans
In response to recent ban announcements on petrol and diesel powered cars by France, Norway, Germany and the United Kingdom, big oil companies are increasingly looking towards gas investments to remain competitive.
Shell, Europe biggest oil company is attempting to remake itself into a gas company. ExxonMobil, America’s biggest oil company is deepening investments in Liquefied Natural Gas, as well as other gas developments in parts of Africa and the United States.
Shell is developing gas for use in heavy transport such as shipping, and building new LNG to supply underserved markets. Last year, the company shelled out $52 billion to buy BG Group Plc and got control of gas deposits from Kazakhstan to Australia.
The company also sold its Canadian oil sands acreage to Canadian Natural Resources Ltd. for $7.25 billion, in March this year, to relinquish control of 1.7 billion barrels of crude reserves. At the end of 2016, Shell had 6.26 billion barrels of oil and other liquids and about 6.99 billion of gas reserves.
ExxonMobil for its part, is ramping up gas investments in strategic markets and is making gas the focus of the company’s long-term plans. Early this year, it completed its $19billion Papau New Guinea LNG plant and began prospecting markets for about 1.3 million tonnes per year in April.
Paul Greenwood, Vice President of ExxonMobil America, Asia Pacific & Africa New Market, in April, told Ibe Kachukwu, who was on a visit, that his company prefers to deepen commitment to exploration and commercialisation of gas, rather than investing in refineries.
Against the backdrop of calls to decarbonise the world, car manufacturing countries in Europe have set targets of around 2050 to ban fossil-fuel cars. At least ten other countries have set sales targets for electric cars, which currently account for just 3% of global auto sales, according to IHS Markit.
Gas demand from the industrial sector is the main engine of gas consumption growth, replacing power generation, where gas is being squeezed by growing renewables and competition from coal, says Paris-based, International Energy Association, (IEA).
IEA forecasts that global gas demand is expected to grow by 1.6% a year for the next five years, with consumption reaching almost 4,000 billion cubic meters (bcm) by 2022, up from 3,630 bcm in 2016.
While China will account for 40% of this growth, the United States – the world’s largest gas consumer and producer – will account for 40% of the world’s extra gas production to 2022 largely due to the growth in its domestic shale industry.
IEA predicts that by 2022, US production will be 890 bcm, or more than a fifth of global gas output. Production from the Marcellus, one of the world’s largest fields, will increase by 45% between 2016 and 2022, even at current low price levels, as producers increase efficiency and produce more gas with fewer rigs.
Maarten Wetselaar, head of Shell’s gas business, told the Financial Times that big oil companies are finding ways to deliver gas more economically. Floating storage and regasification units, or FSRUs — ships which can receive LNG and convert it back into gas — have sprung up on coastlines around the world, as a low-cost alternative to building permanent onshore terminals.
The number of countries importing LNG has almost doubled in the past decade to 35, in large part because FSRUs have made it affordable in places such as Pakistan, Jordan and Colombia. It used to take four years and $500m to build an LNG-receiving terminal. Now you can have an FSRU floating off your country 18 months after taking the decision said Wetselaar.
The implication of this shift to gas is not lost on Africa’s largest oil producer. Nigeria recently launched a national gas policy which articulates the goals, strategies, and implementation plan of the government to reposition Nigeria as an attractive gas based industrialised nation through the prioritisation of local gas demand requirements.
“The Policy clearly defines the direction for gas infrastructure ownership by prescribing full legal separation of gas infrastructure ownership and operations and trading. With regard to pricing, the Policy stipulates that the transitional pricing framework will be retained until sufficient gas supply volumes are built up and a mature gas market is established,” say legal analysts at Templars law firm.
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