August 2012, Vol. 239 No. 8

Features

Geopolitics Of Gas In New World Of Energy

Kuala Lumpur, MALAYSIA–Delegates Confident In Asia’s Gas Infrastructure
Delegates at the World Gas Conference endorsed Asia’s ability to deliver the infrastructure necessary to cater to its rapid growth in gas, according to a poll conducted by GL Noble Denton.

The poll of delegates indicated that industry professionals are confident Asia is well-placed to support continuing growth in gas consumption through the provision of the infrastructure it needs. A total of 71% of participants thought the region has the technical foundation to develop the systems needed to support an increased dependence on gas, while 29% of participants felt that it does not.

The Industry Snapshot Poll was conducted on the third day of the World Gas Conference by global independent technical advisor GL Noble Denton. The poll was also completed online by senior professionals from across the industry.

According to the latest figures, published by the Worldwatch Institute, Asia/Pacific experienced the world’s strongest increase in gas utilization in 2009 with China, India, South Korea, and Taiwan all experiencing demand growth of over 20%. China led the region’s growth spurt by consuming 3.9 Tcf or 3.4% of world usage.

GL Noble Denton’s Executive Vice President for Asia Pacific, Richard Bailey said: “In the past five years, the use of natural gas has increased dramatically in Asia and recent projections suggest that, in China alone, this could increase five-fold within two decades.

“The result of this poll reveals that oil and gas professionals are confident in the region’s ability to develop the infrastructure needed to support its growing demand for gas and to deliver an increasing supply as dependence on gas increases.”

In another poll, delegates were asked whether Japan can decrease its dependence on LNG in the next decade and whether China will become the world’s largest producer of shale gas by 2030.

The geopolitics of energy – competition for, control of, and securing reliable access to those supplies – has been a driving factor in global prosperity and security. The term geopolitics reflects the interplay between power and interests, strategic decision-making, and geographic space.

While for much of the 20th century it was oil that took center stage in the high-stakes game of geopolitical power play, the growing prominence of natural gas has seen this commodity rapidly gaining in geopolitical importance.

“Natural gas is clean, affordable, reliable, efficient and secure and is a foundational fuel in the global energy mix,” said Mel Ydreos, chairman of the International Gas Union (IGU) Task Force on Geopolitics and Natural Gas, Mel Ydreos.

“However, geopolitical developments, politics and policies affect the gas industry in ways that stretch beyond the visible time horizon. These forces can affect the timing, direction and size of gas flows, whether by pipeline or LNG, and the role of gas in energy systems. We want to provide an independent view of geopolitics and natural gas,” he said.

In the past three years, the IGU Task Force has engaged with the industry, academia, political and key global organizations to solicit input on the key regional geopolitical issues in the areas of Asia/Pacific, Middle East & North Africa (MENA), South America and Europe-CIS.

With this, the IGU commissioned a study to examine the highly complex interplay between economic and political factors in the development of natural gas resources, and to analyze the main political challenges and trends that may shape the future in a natural gas-intensive world.

“This should enable us to grasp how political challenges impede or stimulate the expansion of the international gas sector,” said Ydreos.

Hotspots: Past, Present and Future
Ydreos said the issue of geopolitics and natural gas was heightened during both rounds of the Ukraine-Russia dispute and drove home the risks around geopolitical influences. Geopolitics has also made its presence felt in regional and global markets. For example, from the 1980s, the acquisition by European market players of a substantial volume of additional gas from Russia provoked a political reaction from the U.S. Meanwhile, in South America, Ydreos opined that geopolitical factors have influenced and impeded the development of a more liquid and robust market.

“The other and most obvious geopolitical play is Iran. Iran holds large reserves of natural gas, however, the imposed international sanctions have negatively affected the Iranian energy sector,” he said. However, while there is a great possibility that Iran may become a net exporter of gas, the problems plaguing the Iranian gas sector are likely to continue into the near future.

Security Of Supply With Shale Gas
Ydreos said the commercial development of shale gas in North America has been a total game changer for the industry.

“Price has dropped to historic low levels and the vast development of shale gas has positioned North America to be long on supply. This has also led to price stability, which is just as important as the decline in price. With this, North America is no longer reliant on LNG imports,” he said.

In ensuring energy security, the onus is on the respective industry players to develop robust and dynamic risk management and growth strategies that will mitigate the sudden impact of geopolitics. “Players must be able to anticipate emerging trends,” he said.

Apart from uncertainties arising from low-carbon economy policies, evolving market regulations, and low economic growth, changes in rent distribution in international supplies could also have geopolitical implications. These could arise from subsidies on other energy sources and taxes on fossil fuels, and also from de-linking natural gas prices from those of oil.

Ydreos said supply security should also be addressed in a broader perspective. Industry pundits agree that any action plan to address this significant global issue must be on a multilateral platform and take into account input from various stakeholders that include producers, consumers, governments, regulators, as well as technology and service providers.

Malaysia’s first LNG-regasification project completed in record time
During the opening ceremony of the 25th World Gas Conference, event host PETRONAS launched Malaysia’s first Liquefied Natural Gas (LNG) Regasification Facilities in Melaka. The mechanical completion of the project was done in two years comprising of two Floating Storage Units; a Jetty Regasifcation Unit; a 3km Sub-Sea Pipeline with Cathodic Protection System; and an On-Shore Pipeline comprising of two sections.

The project was developed in anticipation of future increase in gas demand in the face of depleting indigenous gas reserves.

The 25th World Gas Conference was officiated by the honorary YAB Dato’ Sri Mohd Najib bin Tun Haji Abdul Razak, Prime Minster of Malaysia.

“The platform and opportunities presented at WGC2012 over the next few days provides a window for players to leverage on emerging opportunities brought about by Asia’s robust growth projection. This is critical as Asia’s rising prominence and significance will to a larger extent help sustain the pace and quality of the global economic recovery,” said Dato’ Sri Mohd Najib.

“Ernst and Young predict that, by 2030, there will be three billion new members of the so-called “global middle class”. This will give rise to a huge spike in demand for consumer items such as cars and household appliances, as well as for services such as travel, which in turn will have an enormous impact on the way the world uses its energy.

“What we urgently need, therefore, is a new paradigm of development that reflects these changing times. We simply can’t afford to allow today’s emerging economies to follow the same “Grow First, Clean Later” model that the early industrialisers adopted. If we do, the consequences for the well-being and security of future generations are almost too frightening to contemplate.

“I believe natural gas has an important role within that paradigm, sustaining development at the same time decoupling it from rising emissions. It may not be a perfect solution but it is without doubt one of the best we have today, offering the lowest carbon footprint of all the fossil fuels and producing less than half the carbon dioxide of coal.

“After almost three years of the Malaysian Presidency, the IGU have rallied the industry collectively to make a case for gas…I am pleased that our advocacy efforts have created an impact and continues to gain momentum,” said Datuk (Dr) Abdul Rahim Hashim, President, International Gas Union, 2009-2012 Triennium.

“Policy and decision makers are beginning to seriously consider the virtues of natural gas which addresses the triple challenges of meeting the insatiable global demand for energy, addressing the issues of carbon dioxide and other emissions and the concern on sustainability both in terms of security of supply and long term availability and affordability. Natural gas is a “no regrets” option!” he continued.

The 25th World Gas Conference was officiated by the honorary YAB Dato’ Sri Mohd Najib bin Tun Haji Abdul Razak, Prime Minster of Malaysia.

“The platform and opportunities presented at WGC2012 over the next few days provides a window for players to leverage on emerging opportunities brought about by Asia’s robust growth projection. This is critical as Asia’s rising prominence and significance will to a larger extent help sustain the pace and quality of the global economic recovery,” said Dato’ Sri Mohd Najib.

While WGC2012 discusses the new discoveries and availability of gas across the world, and other key issues in the value chain, it also addresses energy security and sustainability.

“We see low carbon technologies not just as a way forward to meet our climate change requirements, but also to enhance energy security. Without doubt, the gas industry has a monumental role to play in the coming decades. I look forward to concrete plans and actions from national decision makers present at WGC2012!” agreed Datuk Rahim Hashim.

Also presenting at the opening ceremony, Tan Sri Dato’ Shamsul Azhar Abbas, Acting Chairman, President and Chief Executive Officer, PETRONAS said, “With natural gas being abundant, cleaner and arguably more affordable, gas has the potential to fulfill both rising energy needs as well as satisfy the green agenda.”

He continued, “The fundamentals of the industry are shifting, which cannot easily be addressed by simply matching supply from reserves to rising global demand. This means that availability of gas does not necessarily ensure accessibility and commercial viability. As such, the industry needs a closer cooperation between suppliers, consumers as well as governments to come up with a new sustainable model based on efficiency and economic viability.”