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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Big Oil’s Next Major Move

Several oil majors, including Royal Dutch Shell and BP, are boosting their share of natural gas output. A Bloomberg report said these two oil companies, by increasing gas production, are trimming the lead between them and ExxonMobil, the world’s largest publicly traded oil company. ExxonMobil has a current market cap of $348 bn, while Shell has market cap of $317 bn, and BP at $156 bn.

BP expects by 2020 to produce about 60 percent gas and 40 percent oil, a reversal from 2014 when it was the opposite – a pivot that many other oil companies will likely follow. ExxonMobil for its part currently produces about 55 percent oil and 45 percent gas and remains the largest natural gas producer in the US. Shell’s acquisition of UK-based BG Group for $50 bn in 2016 boosted the share of natural gas to 50 percent of its global fossil fuels output and made it the world’s largest natural gas trader.

Steve Hill, executive vice president for gas trading at Shell said recently “we see the market growing rapidly, with gas demand growing faster than overall energy demand,” adding that “we don’t see renewables as being a threat to gas.”

Brian Youngberg, an analyst at Edward Jones & Co., based in St. Louis, said in reference to gas that “in the fossil fuel area, it’s the one clear growth part of the business.”

Related: Saudi Arabia Won’t Bring 2 Million Bpd Online

LNG is also increasingly taking a larger share of gas trade. LNG’s share of total gas trade is forecast to rise from a third last year to almost 40 percent in 2023, with much of this increase attributed to LNG demand growth in China. According to the Paris-based International Energy Agency (IEA), Chinese demand for natural gas will rise by almost 60 percent between 2017 and 2023 to 376 billion cubic meters (bcm). This includes a rise in its LNG imports to 93 bcm by 2023 from 51 bcm in 2017.

Emerging markets in Asia, including Vietnam, the Philippines, Thailand and Pakistan, will account for about half of global LNG imports by 2023. This continued and sustained rise in LNG demand will have significant impacts on trade flows, LNG pricing structures and global gas security.

Projected gas demand

BP in its 2018 Energy Outlook projects that natural gas demand continues to grow strongly to 2040, supported by broad-based demand and the continuing expansion of LNG.

Global LNG supplies more than double over the BP outlook period, with around 40 percent of that expansion occurring over the next five years. The Outlook added that the sustained growth in global LNG supplies greatly increases the availability of gas around the world, with LNG volumes overtaking inter-regional pipeline shipments in the early 2020s.

Shell in its LNG Outlook 2018  added that global LNG markets have continued to defy expectations, growing by 29 million tonnes in 2017, more than 30 percent more than expected. Based on current demand projections, Shell sees potential for a supply shortage developing in the mid-2020s, unless new LNG production project commitments are made soon.

Moreover, since the start of the century, the number of countries importing LNG has quadrupled, while the number of countries supplying LNG has almost doubled. LNG trade increased from 100 million tonnes in 2000 to nearly 300 million tonnes in 2017.

Related: How Important Are Egypt’s Gas Discoveries?

Finally, as buyers procure more of the super-cooled fuel on the spot market and via shorter-term deals, amid a re-configuring of contract conditions and the removal of restrictive clauses such as take-or-pay and destination clauses, the fuel will increasingly trade more like a true commodity, similar to iron ore and even crude oil.

While Big Oil and global oil markets will still dominate the headlines due to geopolitical dynamics as well as still growing oil demand growth amid supply concerns (at least in the short to mid-term), gas with LNG as a large part of the equation will command more attention and increasingly move out of the shadow of oil markets – a development that many in the industry claim is long overdue.

By Tim Daiss for Oilprice.com

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  • Mamdouh G Salameh on July 08 2018 said:
    It is a very wise move as global demand for natural gas is growing faster than other hydrocarbons and also faster than global overall energy demand. A movement to de-commission nuclear power and coal in electricity generation particularly in Japan and Germany and a huge demand from China in addition to environmental concerns are accelerating the global demand for gas.

    China’s gas demand is projected to grow by 57% in the next six years from 240.4 billion cubic metres (bcm) in 2017 to 376 bcm by 2023 with its LNG imports rising by 82% from 51 bcm in 2017 to 93 bcm in 2023.

    A total of 164 bcm of additional LNG export capacity will be operational globally by 2020, adding 40% to current levels.

    Most of the demand for LNG will go to the Asia-Pacific region. For the European Union (EU), however, piped natural gas particularly Russian gas will continue to dominate the EU gas market particularly with the completion of the Nord stream 2 and the Turkstream by the end of 2019.

    When it comes to undermining Russia’s piped-gas exports to Europe, US LNG exports are at a disadvantage. Natural gas transportation by pipeline is significantly cheaper in most cases than building and employing expensive LNG port infrastructure.

    Then there is Iran. Even before the reintroduction of US sanctions, Iran with the world’s largest proven reserves of gas was in a dilemma vis-à-vis the destination of its gas exports.

    In its initiative to diversify the sources of its gas imports, the EU allocated a special place for Iran and encouraged it to use the Southern Gas Corridor (SGC) once completed.

    Iran can supply gas both by land and sea. Both alternatives could pose a dilemma for Iran when it comes to selecting the most rewarding consumer market, the EU or the Asian market. Being endowed with a long coastline on the Persian Gulf, as well as significant offshore hydrocarbon reserves, Iran could therefore be also tempted to opt for the LNG Asian market.

    However, with the United States walking away from the Iran nuclear deal and the re-introduction of US sanctions on Iran, any possible Iranian connection to the SGC would be shelved for the foreseeable future and the chances of Iran securing investments for the development of its huge gas reserves would be severely hampered.

    With global demand for LNG growing by leaps and bounds, Qatar is planning to expand its production and export capacity of LNG from the current 77 million tons to 100 million tons in the next five to seven years with the aim of maintaining its position as the world’s largest producer and exporter of LNG.

    Then there is Australia which is investing heavily in expanding its LNG production and export capacities. By the 2020 Australia will have a production capacity of 85 mt compared with some 50 mt for the United States.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bill on July 15 2018 said:
    There's enough engineering to convert existing coal or nuclear plants to gas/heavy crude. The steam turbine and generator/switchgear are VERY standard.
    Decommissioning s a fashionable word for job-creating with the public's money in their governments' hands.
    Engineering trumps legislatures...always.

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