Dr. ANDREW MACKENZIE
remarks to Gas & Power conference, Nice, France, June 8, 2000
Thank you very much for that introduction Steve.
I’ve been asked to discuss the global gas industry in the 21st century and touch on some of the technology requirements - something of a challenge in 5-7 minutes! But I’ll do my best.
First, I’ll talk about the background - mainly market trends. Then I want to mention some of the technology implications of these trends. And finally I’d like to discuss with you the reasons for these developments, their pace and sustainability and likely outcomes.
Market Trends: So - to start with market trends.
The mix of fossil fuels used to make energy and petrochemicals in undergoing radical change today towards more hydrogen-rich fuels, away from coal and nuclear, and towards natural gas.
Overall, global demand for gas is growing about twice as fast as demand for oil.
At the moment over 80% of the world’s energy needs are met by fossil fuels, divided between oil (about 40%), natural gas and coal (about 30% each).
About two-thirds of this energy is used in the power and heating markets. In this sector gas is steadily replacing coal for two reasons - it now enjoys a significant cost advantage thanks to the modern combined cycle gas turbine, and it is less harmful to the environment.
There are two other relevant developments under way:
· There are greater available reserves of natural gas relative to oil.
· It is becoming easier to trade gas across frontiers.
These trends are affecting the focus of international energy companies. As BP, 19% of our production in 1997 was in gas. As BP Amoco this rose to 35%. Following the Arco transaction it will rise to about 40%.
At this point one question is always raised. It’s about security of supply.
At present we estimate that some 5000+ TCF of proven reserves are available. This represents an energy content approximately equivalent to all the world’s current volumes of discovered oil.
Historically, gas exploration and development has been limited by the difficulty of getting gas to market. So our view is that discovered reserves significantly underestimate available gas - perhaps by a factor of ten.
In other words, the world is full of gas. At BP Amoco we think gas will be the 21st century’s fuel-of-choice.
Transport and Petrochemicals: So far the gas story has been mainly about fuels for power and heating. But we must not overlook other sectors of the market. As I’m sure you know, about 35% of the world’s energy is used for transport and petrochemicals. Here progress is taking a different tack.
Our customers are asking us for improvements. In urban air quality and in vehicle emissions standards.
If we’re to make progress we think fuels and vehicles need to be treated as a single system. Basically, we need to supply cleaner and more hydrogen-rich transport fuels. More CNG and LPG. And more very-low to zero sulfur gasoline and diesel - with no lead or other metal additives.
One of the simplest solutions to these demands might be to synthesise more hydrogen-richer clean fuels from natural gas.
For reasons I’d be happy to explain afterwards, ultimately it makes less sense to push more hydrogen-richer gas towards petrochemicals - that do not need more hydrogen - than to send it directly to refineries that need more hydrogen.
The probable consequence is that more gas will be used directly to form transport fuels.
This development will probably be reinforced by success in exploiting gas-to-liquids technology to get stranded gas to market as syncrudes and diesels made close to gas production sites.
For instance, at BP Amoco we’re hoping to use advances in gas conversion to liquids at room temperature to develop Alaska’s huge gas resources.
Technology Implications: This takes me on to the technology implications of gas to markets.
At present two technologies are proven - LNG and pipelines. Another is available today but not widely used - Gas by Wire. And there is a fourth which needs further development work to drive down cost - Gas to Liquids.
LNG has its roots in 1970s designs. For more than a decade reducing the capital cost of liquefaction has been the goal of LNG operators. Our Trinidad LNG plant, which came online in 1998, and Shell’s Oman plant which is due on-stream this year, are resetting the industry benchmark (from $300-400/te to $225/te) largely through innovative contracting strategies.
There are other areas - involving LNG, liquefaction, transport and regasification - which have the potential to drive down costs. But over the next five years our view is that the maximum achievable reduction in the downstream LNG cost of supply is probably about 25%.
This would be sufficient to allow LNG to compete with pipeline gas in some markets. The cost of large onshore gas pipelines hasn’t fallen significantly in the last decade. But we think it can come down - perhaps by 25% in the next 5-10 years.
Gas by Wire - electricity transmission - is now a realistic alternative to pipelines. Gas is produced in the normal way, and after processing to remove liquids is sent directly to the power plant for onward AC or DC transmission.
Recent breakthroughs in AC/DC conversion technology mean that energy levels equivalent to 10BCM/yr can be transmitted economically over distances of 3,000 km and beyond - both overland and sub-sea.
As for Gas to Liquids, Exxon, Shell, BP Amoco and others are active in this arena. We’ve spent $150 million so far and currently plan to build a demonstration unit in Alaska by 2002 for a cost of $70-80 million.
There are many reasons for our interest in GTL. We see it as a possible means to monetise stranded gas, a means to access markets currently inaccessible to LNG and pipeline technologies, a means to dispose of gas and enhance environmental performance, a feedstock for chemicals and a means to generate clean fuels.
Which of these becomes a reality depends on the outcomes of ongoing GTL technology development programmes, especially capital cost reduction.
Environmental dimension: Inextricably linked to these technologies - which have the potential to create a global gas economy sometime this century - is their impact on the environment.
This isn’t the forum to rehearse BP Amoco’s environmental stance. So just let me say that we accept that no energy company in the future can expect to be really successful unless it is sustainable and so has the capacity to keep using its skills and keep growing its business.
In other words, our approach is rooted in sound business common sense. As we see it, shareholder value and social responsibility support each other. We view climate change, pollution and all the related environmental issues our industry faces as another form of opportunity.
Our view at BP Amoco is that natural gas, LNG and gas-fired power generation offer a means of achieving significant reductions in greenhouse gas emissions globally.
For example: By importing gas and developing a gas economy a country can achieve significant environmental improvements over other fossil-based economies.
A gas economy can also attract investment, improve air quality and offer sustainable growth opportunities. There are emissions advantages, and improvements in performance standards and energy efficiency.
It will be many years, possibly decades, before the full vision of a gas economy comes into focus.
But implementation of this vision has started already and the rate of gas market share growth is advancing for heat and power generation. The next step is gas-for-chemicals in 5-10 years time followed by gas for transport fuels in 10-15 years.
Thank you very much.