In the Pipeline: What’s in Store for Natural Gas

Natural gas is already a major global energy source, accounting for around 21% of the world’s energy supply five years ago.  Recently, BP chief executive Bob Dudley suggested that while fossil fuels would continue to meet most of the word’s energy needs, the balance will shift in favour of natural gas.  

This shift will be largely due to increasing demand from Asia, but also because natural gas is among the more plentiful of what remains of the world’s hydrocarbons, both as ‘unconventional gas’ (referring to the relative difficulty of extracting the resource) and ‘conventional gas’ (sometimes called ‘free gas’).

In the ‘unconventional’ category is shale gas, much of which is produced in the USA.  Russia and the Middle East continue to rule the roost as far as the ‘conventional’ gas supply is concerned, and here politics enters the picture.  A country whose actions displease Russia may be threatened with having or find their gas turned off or the price they pay hiked up.  Meanwhile, the USA remains a much smaller player in Europe than Russia, has no state-owned gas company and is obliged to encourage free trade.  It therefore has to let the markets decide who gets gas and for how much.

However, a more hopeful trend was predicted in a Reuters blog last year: the USA’s gas contribution will help liberalise the market in Europe and so undermine Russia’s lofty position in the longer term.  In addition, unlike their counterparts further east, the larger western EU countries are strategically placed to access gas from producers such as Norway; they are also home to significant LNG (liquefied natural gas) ports.

The world’s largest shale gas reserves are to be found in China, which wants to see natural gas make inroads into the dominance of coal over the next few years (and so reduce urban air pollution, as well as carbon emissions).  Its targets are ambitious but achievable through a combination of domestic production and imports.  The shift will be easier if private investment is allowed to challenge state-owned monopolies and, if technological advances overcome the difficulties of extracting it, China’s geology is less fracking-friendly than the USA’s.

South Africa is likewise looking to the future and addressing its limited natural gas infrastructure by drawing up plans for a $6 billion pipeline from a gas field in the sea off Mozambique, where a significant natural gas reservoir has been located.

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