hewitt.mobi: The Times - Gas the power of the future with oil producers in conflict

The Times - Gas the power of the future with oil producers in conflict

Andrew Clark

Last updated June 7 2011 12:01AM

The world could be on the brink of a “golden age” of natural gas, propelling consumption of the energy source beyond coal to rival oil as the planet’s favourite fuel by 2035, according to the International Energy Agency.

A gas production boom in China, Australia and the United States, together with a retreat from nuclear generation in nations such as Germany after Japan’s Fukushima disaster, could spark a 50 per cent surge in use of gas to account for a quarter of all energy demand, the agency forecast.

The IEA published its scenario 48 hours ahead of what is likely to be the most politically charged Opec gettogether for decades.

The 12 leading oil-producing nations are facing pressure to increase short-term output to keep crude prices in check — the cost of a barrel of Brent crude was just below $115 yesterday, under this year’s peak of $127 in April but high enough to hurt faltering Western economies.

Arab nations have rarely been more divided, split on how to respond to popular uprisings in Bahrain, which is closely allied to Saudi Arabia, and Libya, which is Africa’s fourth-biggest oil producer. Qatar, a leading Opec member, is participating in the allied bombing campaigns in Libya.

It is unclear who will represent Libya at the Vienna meeting, after the defection of Colonel Gaddafi’s Oil Minister. Shukri Ghanem fled to Italy last week and announced that he was supporting “the choice of young Libyans to fight for a more democratic country”.

Amrita Sen, a commodities analyst at Barclays Capital, said: “It’s not that Opec hasn’t operated in an environment before where countries don’t get along with each other, but it doesn’t make things easier.” Ms Sen believes that Opec needs to raise output by at least three million barrels a day from its present 26.2 million barrels.

Stephen Schork, a prominent US energy analyst, said he anticipated a fraught gathering: “This is going to be one of the most raucuous Opec meetings in a generation. You’d have to go back to the Iran/Iraq war of the 1980s to see a meeting this contentious.”

The IEA, which represents many of Opec’s customer nations, has said there is a “clear, urgent need for additional supplies” of oil, not least because of a 70 per cent drop in output from Libya, and has indicated it could give the green light for Western nations to release strategic stockpiles of oil.

Its long-term prediction of gas’s rise amounts to a warning shot that Opec’s power will not last for ever. The IEA cites an ambitious policy in China to promote gas use plus the spread of environmentally controversial techniques such as hydraulic fracking to release previously untapped sources of gas.

As motor manufacturers respond to high petrol prices, more gas-powered cars, lorries and buses are likely to take to the roads. Nuclear power is facing long-term reverberations from Japan’s tsunami in March, when the Fukushima nuclear plant was damaged. Australia is forecast to become one of the world’s biggest exporters of liquefied natural gas by 2020, catching up with the present leader Qatar.

“We have seen remarkable developments in natural gas markets in recent months,” the IEA’s executive director Nobuo Tanaka said. “There is potential for gas to take on a larger role.”

But he warned that the rise of gas was not necessarily good news in combating global warming. “While natural gas is the ‘cleanest’ fossil fuel, it is still a fossil fuel. Its increased use could muscle out low-carbon fuels, particularly in the wake of Fukushima.”

He said that while global gas reserves were vast, an increase in exploitation of the source would require technological advances, political will and a conducive financial environment. Gas remains more awkward than oil to transport in large volumes.

One of Britain’s largest electricity generators, ScottishPower, underlined its ambition to increase its exposure to gas by setting out plans yesterday for a new gas-fired power station near Bristol, with a generation capacity of between 900 and 1,200 megwatts of energy.

In The Pipeline

Comment

Energy is the lifeforce of this country, over recent years we have become dependant on imports of gas to meet the needs of consumers in the UK. Gas is vital for generation of our electricity, gas powered stations generate 40% of the UK's electricity.

Until recently, supplies of gas from beneath the North Sea were sufficient for all of Britain's domestic needs. Not all Britain's gas originates in the UK these days. Indeed, Britain exported gas to continental Europe through an undersea pipeline from Bacton in Norfolk to Belgium. Now all that has changed. Dwindling supplies from the North Sea mean that

Britain is now importing around 50% of its gas.

The imported gas arrives via the pipeline to Belgium, which is in turn linked to a network of pipes which criss-cross Europe. Gas is also imported as liquefied natural gas (LNG) via a terminal on the Isle of Grain, in Medway, Kent, and Milford Haven in Wales. As North Sea production continues to fall, these imports are going to rise rapidly. Half of Britain's gas is now imported. And by 2020, existing North Sea gas fields will be supplying only 10% of our gas needs.

So where do the new imports come from?

The existing pipeline to Belgium has been upgraded to be able to deliver 15% of the UK's peak gas demand. An interconnector between Holland and Bacton will supply a further 10%. The Langeled pipeline links Britain directly to a huge gas field off the coast of Norway, which can supply 16% of the UK's peak demand when it is fully operational.

The Langeled pipeline

Import terminals for LNG are operational at Milford Haven in Wales. they are capable of handling about 50% of Britain's gas. Britain's gas will soon come from a wide range of places.

Tanker route between Quatar & Wales

The LNG for Milford Haven is supplied under long-term contract from the Gulf state of Qatar. Advances in liquefied natural gas (LNG) technology which cools gas to -180C, shrinks it to a liquid one six-hundredth of its size and allows it to be shipped in tankers has meant that Qatar has spent the past decade ramping up its output for export overseas. From 2 million tonnes in 1997 it is expected to ship 77 million tonnes by 2011, using a fleet of 54 giant Korean-made tankers built under the biggest shipping order since the Second World War. The recipients include Britain, which within a couple of years will be getting up to 50 per of its gas from North Field, through the South Hook terminal in Wales.

LNG Tanker QuatarGas

Britain has a reasonably diverse range of suppliers, including the Middle East and Norway. But up to a quarter of the UK's gas will be coming from the continental network, whose biggest supplier is Russia. And the terms on which Russia supplies gas to the European network will be very important in determining the price we pay for gas in future.

European Natural Gas Network

At present, 40% of Britain's electricity is generated from gas. That figure will rise in the coming years as the current generation of nuclear power stations is decommissioned. As the new import facilities come on stream, a better balance between supply and demand for gas is likely to be achieved. But many industry experts are concerned about energy supplies in the middle of the next decade.

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