The following are excerpts from a speech delivered Dr. Andrew Mackenzie, Group Vice President Technology BP Amoco
Overall, global demand for gas is growing about twice as fast as demand for oil. 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.
At the moment over 80 percent of the world's energy needs are met by fossil fuels, divided between oil (about 40 percent), natural gas and coal (about 30 percent 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: the first one is greater available reserves of natural gas relative to oil, the second one is that gas is becoming easier to trade across frontiers.
These trends are affecting the focus of international energy companies. As BP, 19 percent of its production in 1997 was in gas. Following the Arco transaction rose this to 35 percent, and it will rise to about 40 percent
It is estimated that some more then 5000 TCF of proven reserves are available. This represents an energy content approximately equivalent to all the world's current volumes of discovered oil. It is thought that the discovered reserves significantly underestimate available gas - perhaps by a factor of ten. The logical conclusion is simple: the world is fill with gas.
Gas and transportation
So far the gas story has been mainly about fuels for power and heating. But we must not overlook other sectors of the market. About 35percent of the world's energy is used for transport and petrochemicals.
The customers are asking for improvements, In urban air quality and in vehicle emissions standards. If BP is to make progress - fuels and vehicles need to be treated as a single system. Basically, BP needs 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.
The simplest solution to these demands might be to synthesize more hydrogen-richer clean fuels from natural gas. However 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 logical 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.
BP Amoco intends to use advances in gas conversion to liquids at room temperature to develop Alaska's huge gas resources.
Technological advancement in moving gas
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. BP Trinidad LNG plant, which came online in 1998, and Shell's Oman plant which is due on-stream this year(2000) 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 percent.
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 BP thinks it can come down - perhaps by 25percent 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. BP alone has spent $150 million so far, and currently plan to build a demonstration unit in Alaska by 2002 for a cost of $70-80 million. The company sees 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 programs, especially capital cost reduction.
Environmental questions
These technologies - which have the potential to create a global gas economy sometime this century–has an important environmental impact . 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 attract investment, improve air quality and offer sustainable growth opportunities. There are emissions advantages, and improvements in performance standards and energy efficiency.
But 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.
© 2000 Mena Report (www.menareport.com)
