natural gas to rival oil as energy source

Boom time for gas: in the next few years, natural gas will rival oil as an energy source and transform Middle East economies
Middle East, The, Feb, 2004 by Ed Blanche
E-mail Print Link Picture the scene--it's 2020, and the energy ministers of the Organisation of Gas-Exporting Countries, known as OGEC, the umbrella for the dozen or so nations which dominate the market, gather in Madrid for their annual get-together to determine production quotas and price levels for the new primary energy source that fuels the global economy--natural gas, or more specifically liquefied natural gas, known as LNG.

That scenario may seem somewhat fanciful right now, but the emergence of a partner, possibly even a successor, to the Organisation of Petroleum Exporting Countries (OPEC), which has dominated the world's energy market since the 1970s, is on the cards as the natural gas business, particularly the Gulf:based LNG sector, is set to expand into a global boom with the United States the dominant market.


The worldwide shift towards LNG will bring in its wake profound political and economic changes in many parts of the world, providing a lifeline for the economies of some Gulf states whose oil production is sliding into decline as fields are exhausted.

The international trade in gas delivered by pipeline and tanker will eventually rival today's petroleum market and become as important to Middle East economies as oil.

Last December, some of OPEC's most important member states shifted their attention from crude oil to LNG exports at a conference convened by the administration of President George W. Bush to boost US imports of the refrigerated fuel.

The US is without doubt the key market for LNG, currently accounting for one-quarter of the natural gas consumed in the world every day. The Americans, increasingly concerned about the security of their energy supplies, have long sought to undermine OPEC's influence in the oil market.

While OPEC largely controls global oil supplies and prices, the Bush administration would like to see competition blossom among LNG exporters. Non-OPEC producers like Russia, Norway, Trinidad, Australia and Oman are looking at LNG exports to generate new revenue. "It is in our interest ... to develop as many international sources as possible for US imports of LNG," US Energy Secretary Spencer Abraham told the conference in Washington. "LNG is clearly going to be a large factor in the world's future energy equation."

The first commercial LNG project was launched in the mid-1960s, with modest sales by Algeria to Britain and France. After the 1973 oil crisis, LNG got a major boost, particularly from Japan, which wanted to drastically reduce its dependence on Middle Eastern oil. Last September, the US Department of Energy predicted that LNG would account for 15% of US gas consumption by 2025, compared to 1% in 2002.

US demand for natural gas is projected to grow by 23% over the same period, and the forecasts for Europe and Asia are just as striking. Gas provides about one-quarter of the total energy for the US economy. In Europe, the figure is 20% and rising, mostly with gas piped from Russia, which has 30% of the world's known reserves and probably a lot more under the frozen and largely unexplored north.

Qatar and Iran share another 25% in the vast North Field/South Pars field in the southern Gulf: Next comes Saudi Arabia and the UAE with sizeable reserves. For the UAE, with 212 trillion cubic feet of gas, mostly in Abu Dhabi, the gas fields will fill the economic gap left by the emirates' declining oil fields. Even Oman, whose modest oil production is also in decline, has used LNG exports--worth some $1.2bn in 2002--to offset falling oil revenue.

Daniel Yergin, author of the definitive book on the oil business, The Prize: The Epic Quest for Oil, Money and Power, calls the emerging LNG market "the next prize". Yergin, chair of Cambridge Energy Research Associates, a leading energy consultancy, and his colleague Michael Stoppard, the group's director of global LNG, argue that the natural gas industry "will have a far-reaching impact on the world economy, bringing new opportunities and risks, new interdependencies and geopolitical alignments". Some analysts anticipate that the new interests and inter-dependencies brought by the LNG trade will bolster relations between producing and consuming countries. Others, however, worry that it will only lead to dependence on imports for yet another key commodity, which will create vulnerability to deliberate machinations, political upheavals, or economic problems."

In a world as uncertain as the one we live in today, with the potential for widespread political and economic upheaval in the Middle East, the Caucasus, Central Asia, West Africa and Central America, established and emerging sources of energy, such concerns carry some weight. "One can well envision scenarios in which the future large LNG exports could be subject to some kind of interruption, even if only-short-lived," Yergin and Stoppard note. "But the best response to such security concerns is to develop the global LNG business and ensure that ample supplies come from many countries. Encouraging LNG projects in various countries is a safeguard against undue dependence on too few nations."

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