Natural gas threatens to be biggest competitor to Crude Oil

Published May 15th, 2012 - 08:49 GMT
Global oil demand is forecast to grow by around 900,000 barrels a day in 2012
Global oil demand is forecast to grow by around 900,000 barrels a day in 2012

Rising crude oil prices are worrisome for importing countries as it stokes inflation while below remunerative prices cause concern for major oil producers especially those coming under Organisation of Petroleum Exporting Countries (OPEC). Crude oil continues to be an enigma for market analysts policy makers and the layman alike whether it is related to its supplies pricing and environmental issues despite the fact that crude oil per se can't be used as such by anyone. It needs to be refined and made into petrol diesel or lubricants to be used by the consumer.

Even when OPEC Secretary General HE Abdalla S. El Badri says current prices are not due to market fundamentals academic evidence doesn't say so. Speculation is pushing prices higher. Trading is being made on the perception of a supply shortage rather than evidence of any actual or impending shortfall. It is related to geopolitics. In many respects it can be described as a fear factor. A University of Michigan study points out speculation is never a factor for boosting oil prices but is linked to fundamentals.

A Congressional Budget Office report says even if US were to increase its domestic production of crude oil the nation won't escape the vagaries of speculative activity in oil markets or disruptions in supplies due to geo political tensions elsewhere. Many people still fear crude oil supplies may not last forever and to curb its use nations are now keen to pursue biofuels wind solar power. In the near future you can trust OPEC Chief who says there is no supply shortage at all. In fact there is surplus supply balance in each quarter of 2012. This means funds with big pockets needn't bet on longs and can even cut short those pretty long positions.

Global oil demand is forecast to grow by around 900,000 barrels a day in 2012. Non OPEC supply is expected to increase by 600 000 barrels a day in 2012 according to OPEC Secretary General. And from OPEC's perspective demand for its crude in 2012 is projected to average 30 million barrels a day. This is more than 1 million barrels a day lower than its current production volume. Going by present trends I think Oil producers should be more worried about prospects of Oil than its consumers. A technology that can convert Gas to liquids (GTL) that can convert natural gas to longer chain hydrocarbons such as gasoline or diesel can provide good competition for crude oil. Huge quantities of natural gas are otherwise burned up due to lack of pipelines to transport them. GTL technology is not new either Royal Dutch Shell claims to have over 30 years experience in this area while South African energy major SASOL has six decades of domain knowledge with them.

Shell launched a major gas to liquids (GTL) initiative in association with Qatar Petroleum in 2011 and this is expected to be the company's main engine for growth in 2012. It will contribute 8% to Shell's production worldwide. Pearl GTL project will process around 3 billion barrels of oil equivalent over its lifetime from the world's largest single gas field the North Field in the Arabian Gulf. The field stretches from Qatar's coast and contains more than 900 trillion cubic feet of gas equivalent to 150 billion barrels of oil or over 10% of worldwide gas resources. OAO Rosneft Russia's largest oil producer plans to build a pilot plant in the country's Far East to process natural gas pumped out alongside oil into liquids according to a contractor with GTL technology Bloomberg reports.

The Russian government wants oil producers to use 95 percent of the so called associated gas which is often burned off due to a lack of pipelines. South African energy major SASOL in September 2011 took up a major project for the Uzbekistan government in association with PETRONAS and USBEkneftegaz. So should we be worried about rising crude oil prices anymore? One thing is for sure hedge funds or investment banks who bet on long positions shouldn't be deciding the fate of crude oil prices any more. But it will be innovation in fuel sourcing that will hold the key.

 Sreekumar Raghavan


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