Natural gas is an increasingly attractive fuel. Consumption should rise rapidly. There are great opportunities in open and on-line markets, as well as in developing markets in emerging economies.
But meeting expanding needs in diverse markets will challenge both the industry and its regulators.
Some people have unrealistic expectations about the pace of liberalization, and underestimate the complexities. LNG markets are changing, but in different ways in the Asia-Pacific and Atlantic regions.
Companies with global aspirations need broad capabilities – including financial and technological strengths, a commitment to building enduring relationships, a trusted reputation, and a culture of relentless improvement and constant innovation.
Delivering complex projects requires a knowledge of the whole gas chain and the ability to contribute at every stage.
The American journalist H L Mencken once suggested that `love is the delusion that one woman differs from another'. I clearly have my own opinion on that.
But, rather than going into it now, let me pass straight on to what is not a delusion - that natural gas markets do actually differ a great deal one from another.
We all understand this. But there has been a tendency to focus on the onward march of liberalization - and the necessary business capabilities for open and transparent markets, such as those in North America and the UK.
But global aspirations require a broader portfolio of skills and strengths. I will look first at some differences between markets, and then at the range of capabilities required for success.
The context, of course, is the increasing attractiveness of natural gas - because of its abundance, efficiency, cost-effectiveness, cleanliness and lower carbon intensity.
Shell scenarios covering the next two decades indicate global gas consumption could more than double, supplying an increasing share of expanding energy needs.
And the value of gas will be even more apparent as scientific consensus on the reality, human causation and impact of climate change hardens.
But the many virtues of gas don't, of course, include ease of supply. Meeting these expanding needs in diverse markets will challenge this industry, as well as those who set the regulatory frameworks within which we work.
Continuing diversity:
Gas markets differ in many ways - adequacy of infrastructure, access to supply, customer profile, degree of competition, status of regulation. Let me touch on:
market development patterns of supply, and openness and transparency.
The range of development is very wide. In the United States, gas supplies a quarter of primary energy 2,200 cubic meters per person annually. In China, it supplies only 3 percent of energy, just 17 cubic meters per person'.
It supplies a significant proportion of energy in the Netherlands and Britain, less in Germany, France and Spain. Japan still uses less gas than other industrialized countries.
The US is unique in its fragmented domestic supply. Over half its gas comes from a multitude of small independents. Imports account for only 16 percent, almost all from Canada.
Contrast this with Europe. The UK and the Netherlands are self sufficient, with relatively few domestic suppliers. Other European markets rely heavily on imports. Norway, Russia and Algeria provide over 40 percent of EU gas.
Turning to Asia, Japan, South Korea and Taiwan rely for their gas on 10 LNG schemes - 85 percent from Brunei, Indonesia, Malaysia and Australia.
These differences are, of course, fundamental to the way business is done and money made - as well as to the business capabilities required.
There is a clear trend of liberalization - as governments seek the benefits of competitive pricing, innovation and flexibility. But in many markets - developed and undeveloped - it has hardly started.
I don't think this trend will be reversed, although there are strong forces ranged against it.
But I do think some people have unrealistic expectations about the pace, and underestimate the complexities - which have been so graphically illustrated in California.
The US gas market enjoys unique advantages - size, range of domestic suppliers, flexibility, sophistication. Yet continuing `bubble' prices of under $2/MMbtu didn't encourage investment in long-term supplies, which are now inadequate for anticipated demand. Customers have faced fourfold price rises.
Can we be sure open markets could support the development of gas infrastructure in major emerging economies? How would they make the jump to the necessary scale and sophistication to support the huge investment?
Closed markets can certainly breed inefficiency and inertia.
But there have also been successes - such as the business-state partnership which built the Dutch gas system and encouraged investment necessary to maintain reserves.
Some people expect a rapid shift from dedicated LNG supply schemes - supported by long-term purchase contracts - to something closer to oil spot markets.
I think there will be a much more complex pattern of change, which could be different in Asia-Pacific and the Atlantic.
The Asia-Pacific system meets its customers' need for reliable supplies. Long-term sales agreements with major buyers - linked to the price of competing oil - have worked well, enabling investment and reducing costs.
The market is currently oversupplied. But rising demand offers the opportunity for a progression of expansions and new projects.
There are only a limited number of suppliers with the necessary resources, who have little interest in transforming a tried and tested system.
That said, things in the Asia Pacific are changing. For example, developing the Chinese and Indian markets will present different risks and opportunities.
We aspire to be involved with Chinese oil companies in the whole chain supplying gas from the East China Sea to the Shanghai area - exploring, developing, transporting, building onshore infrastructure and marketing gas to customers.
But market dynamics in Asia-Pacific will remain very different from those in the Atlantic, where LNG complements pipeline supplies.
The size and flexibility of US demand - and its developed futures market - has encouraged innovation. And there are many alternative sales possibilities, in Europe and Latin America.
New supply sources include the expansion of Nigeria LNG - which has been very successful - Trinidad LNG, and a proposed project in Venezuela.
Another important development has been the delivery of surplus LNG from Nigeria, Oman and Asia-Pacific suppliers into the US and Europe, in which we have been closely involved. But this should not be seen as the beginnings of a `spot market', rather as developing flexibility and optimization.
Playing this sort of game requires particular capabilities -a variety of supply sources, shipping, and physical access to the markets. Let me turn to the question of capabilities.
Linda Cook, CEO Shell Gas and Power at the 20th CERA Annual Executive Conference, Houston, Texas, USA
Source:SHELL.COM
© 2001 Mena Report (www.menareport.com)
