The three-yearly happening of all happenings in the natural gas industry, World Gas Conference, was arranged in Kuala Lumpur this week, and it marks the end of the Malaysian Presidency of the International Gas Union, IGU. Now, France takes over and will lead the IGU until the next World Gas Conference in Paris in 2015.

The event offers a great opportunity to catch up with industry experts and friends, and also to listen to some of the latest thoughts and opinions on more or less everything that has anything to do with natural gas. So, in this blog post I will try to capture the main themes that occupy the minds of natural gas industry people these days.

First of all, it is very clear that current demand growth for energy, and the expected future demand growth in the Asian region is throwing the energy industry into a period of uncertainty and change. The President and CEO of Petronas made this very clear in his opening remarks:

“Ladies and Gentlemen, the fundamentals of the energy industry are shifting – we cannot just match supply from reservoirs with increasing demand anymore”

This comment of course applies to both oil and gas, and refers to the fact that it gets more and more difficult to get the stuff out of the ground. It actually takes quite an effort just to sustain current production levels, let alone match future demand, which is expected to be massive, in particular from Asia.

The Chairman and CEO of ExxonMobil was on the same track when he stated the following:

“The energy industry is at a crossroads, and the choices we make now will shape the standard of living for generations to come”

President and CEO of Shell used the term that Tony Regan used in Hong Kong last week: “Natural Gas Revolution!”, indicating that as all other energy sources are facing some sort of “problem”, natural gas will become the new default, or the mainstream energy source.

Shell was consistent in their messaging from several executives, and also brought forward new projections for future natural gas demand, indicating a doubling of global LNG demand by 2025.

The question is obvious: Even if the reserves are there, will the industry be able to gear up, solve all the technical challenges, and bring on line such a staggering amount of new capacity? I dont know, but it seems unrealistic to me.

Of the more down to earth topics, pricing of natural gas in the different regional markets continue to be a source of heated debate, floating LNG continues its climb to prominence, and the LNG industry seems finally to have realized the potential of small scale developments.

Pricing first, at the time of the WGC, the price of natural gas in the US was 3 dollars, and in Asia it was close to 20 dollars. The question that keeps coming up is “when will we see one global natural gas price? Or at least some convergence of these prices?”. There is no simple answer here, but my understanding is that the following is needed for any significant convergence to occur:
- A large share of liquidity is necessary, this means volumes of LNG that are not allocated and are flexible. So far it has not been possible to make FID on these massively expensive projects without firm offtake contracts.
- There need to be large capacity channels for moving liquid volumes from one market to another. US liquefaction will become such a channel, but it takes time to build up the volume. The Singapore LNG terminal will potentially add to the liquidity of the Asian market, but it will not be big enough to have big impact – besides, it is uncertain what this terminal will really mean for the regulated markets in all its neighbouring countries.
- Domestic markets need to be liberalized, so that sellers of LNG can be confident about the price setting mechanisms of their product in the different market. Liberalized markets will drive the flow and demand for flexible volumes, which again will lead to more liquidity in general.

So, to conclude on prices, a lot of complex things need to happen before we can expect any significant development towards a global LNG price. I expect we will see big regional differences also in the future.

Floating liquefaction continues to be the topic of much anticipation. Petronas has made the go-ahead for their unit to be in operation by 2015, a year ahead of Shells first FLNG. CAPEX indications from the Australian mega LNG developments indicate that floating solutions may be only half the price of a land based concept, so if this proves anywhere near representative we can expect a lot of FLNG units in the years ahead.

Small scale developments are gaining ground also inside the LNG industry. Initially, the small volumes were regarded more a hassle and the big players didnt want anything to do with it. This has now changed, and it is very encouraging to see the President and CEO of Shell even mentioning LNG fuelled ships specifically in his keynote address. Also the landbased LNG fuel market is growing rapidly, with more than 15 million natural gas fuelled vehicles already in operation. There will be many more over the next few years.

In conclusion, the stage is set for natural gas, so let me join the others who have started to brand this decade as “The Natural Gas Revolution”

Enjoy the weekend!