- MARKET CHANGES: WE WILL LIKELY SEE A STRONGER PUSH TOWARD LNG EXPORTS, ALTHOUGH MOST NATURAL GAS IMPORTERS WILL PREFER A MIX OF PIPELINE GAS AND NATURAL GAS TO ENSURE OVERALL ENERGY SECURITY
- NATURAL GAS PRICES WILL SLOWLY DECOUPLE FROM OIL PRICES AS THE NATURAL GAS MARKET IS INCREASINGLY LIBERALIZED AND OPENED FOR TRADE. THERE ARE MORE USES FOR NATURAL GAS IN HEAT NETWORKS, INDUSTRIAL PRODUCTION, TRANSPORTATION, SHIPPING, AND SO ON.
1. UNCONVENTIONAL OIL: We may have already passed peak oil in terms of conventional crude oil reserves, but peak gas is still many years away.
That’s actually a plus for natural gas. Natural gas companies face the struggle David against Goliath. They go head to head against crude oil in their struggle for dominance in the energy industry. In contrast to crude oil, natural gas supplies will last a lot longer. This goes back to peak oil theory, as we have first used the easy to get oil and put natural gas on hold. For most of the 20th century, we did not perceive natural gas to be on par with oil. Oil had so many advantages from an infrastructural perspective that we did not think twice about our preference for oil. Oil is easy to transport and does not require an elaborate pipe network to transport it from one place to another. This simply adds costs, and may explain why electric cars did not win the fight against as oil to power transportation more than 100 years ago.
Most forecast predict that natural gas will superceed oil in the energy industry and become the most widely used energy resource in the economy. This is also because peak gas, in contrast to peak oil, is still years away.
2. GEOPOLITICS: The geopolitics of energy inherently favors natural gas at the cost of crude oil
In Europe, we have already built much of the infrastructure for transporting natural gas, which now needs to be expanded. Major projects are underway to further promote the distribution and consumption of natural gas. Nord Stream 2 is one such project, joining Nord Stream 1 and following the same route with some minor changes near Danish territorial waters. Nord Stream 1 has already been built. Nord Stream is intended to supply natural gas to markets in Western and Central Europe.
Natural gas is urgently needed in the European energy market to support renewable energy generation, which has skyrocketed in Germany since the Renewable Energy Sources Act was passed more than a decade ago. As renewable energy has grown, so has the risk of a major power outage that could bring industrial production to a halt in a nation that prides itself on precision engineering. This December, Germany’s renewable energy production was found to be lagging, with little wind and solar power being produced. For a time, it was difficult to maintain a stable power grid. But while Germany is fully committed to renewable energies, other regions of the world are taking a different path – and following it very successfully.
In the United States we have witnessed the shale boom. Public interest in tight oil and tight gas has waned a bit, but that doesn’t make it any less relevant. What we are seeing is the revival of the American energy industry, which has long depended on energy imports from the Gulf to make up the gap in primary energy demand. Of course, energy consumption per person is much higher in the United States than in the European Union. The transportation system is based almost entirely on petroleum. This may have been one reason why such enormous efforts were made to advance the shale revolution. Was it worth the effort? Absolutely.
With these first tentative steps toward shale gas revolution, the United States has once again become the global exporter of hydrocarbons par excellence. Now the U.S. are in a position to provide the Europeans with LNG, a result of their tight gas operations in the U.S. energy market. Its newfound position as the world’s leading producer of hydrocarbons and the largest energy exporter of such commodities has justified breaking with the old mold. The USA is investing more in rebuilding its energy infrastructure and modernizing older oil and gas projects. Yes, shale gas has greatly changed the energy market in the USA. Shale rock has been tried in many places, but nowhere has it had such phenomenal success as in the United States.
In the Gulf region, we see that there has been considerable development in the natural gas sector. Qatar was politically isolated, but relations with its neighbors have improved dramatically. This will benefit Qatar as it looks to expand LNG exports to Europe and Asian markets. This comes at a good time, as natural gas is slowly replacing oil as the number one fuel source in the European Union. In addition, new LNG import terminals have been built in Europe that should be able to receive Qatari natural gas.
In the eastern Mediterranean and the Black Sea, we have made new natural gas discoveries that will determine the fortunes of the countries along the Mediterranean coast. Great discoveries have been made by Turkey in particular. If tapped, these resources will support the industrial growth of the Turkish economy and facilitate energy trade. It would also make Turkey the hub of natural gas trade in West Asia, as major natural gas pipelines pass through Turkey.
3. MORE OPTIONS: Consumers like to choose, just as they choose from a menu in a restaurant. In a closed market, natural gas could give us more options than oil.
Natural gas allows energy importers a relative degree of energy independence compared to energy exporters because they can choose between two sources of hydrocarbons. For countries like Germany, this choice exists. German energy importers can choose LNG supplies or pipeline natural gas. Currently, most of the oil and natural gas consumed by Germany comes from the Russian Federation. It would be more advantageous if consumers had more choices. This would also lower prices for consumers within the European Union, as LNG competes with pipeline gas in the European energy market.