The energy of the 21st century

Europe’s gas is as likely to come from Iran or Qatar as from heavyweights like Russia

Natural gas looks set to rival oil as the energy source of choice for consumer nations. The volatility of oil prices and dwindling crude reserves means the search is on for alternative fuels to supply the voracious markets of Europe, North America and beyond.
A more environmentally friendly fuel source than oil or coal, natural gas is already being used extensively for power generation, and industrial and household consumption, as well as for advanced derivative products and petrochemicals.

It is the fastest growing form of energy in the world. Annual global consumption is expected to double to 4.5 trillion cubic metres per year (tcm/yr) by 2020. Consumption in parts of the European Union (EU) is rising at more than 10 per cent per year. Overall, it is expected to grow some 34 per cent by 2010 to reach 327 billion cubic metres per year (bcm/yr). With EU enlargement, the figure could be as high as 356 bcm/yr, a jump of 46 per cent.

The EU, faced with a growing energy deficit, has issued guidelines intended to promote long-term security of supply. In essence, these will mean diversification of fuels and suppliers, as well as opening up energy markets to greater competition.
The result is a strong shift away from oil towards gas, as well as to other producers. Currently, Russia is the leading gas exporter to the EU, followed by Algeria, then Norway. These will remain key players, but in the future, gas is just as likely to come from as far afield as Iran and the Caspian countries, Qatar, or Nigeria.

In the UK, which already has a fully liberalised gas market, there are moves to secure alternative supplies from overseas to top up the country’s limited stocks from the North Sea. By the end of the decade, the UK will be importing Qatari gas, as well as from traditional suppliers like Norway and Russia.
Improved technology and falling costs in liquefied natural gas (LNG), whereby gas is liquefied and carried by tanker, has opened up more options for consumer states. Major LNG producers, such as Qatar and Nigeria, can now compete with pipeline gas in European markets. The trend is likely to continue.

Other technologies, such as gas-to-liquids (GTL), which can turn natural gas into virtually pollution-free diesel, jet fuel and naphtha, will also unlock remote, previously stranded reservoirs and allow producers to exploit distant markets. Shell already operates such a facility in the remote Borneo jungle.

The launch of the Gas Exporting Countries Forum (GECF) in 2001 – which groups some of the most powerful gas producing states in the world – is indicative of the growing stature of this energy source.
GECF member states – which include most of the world’s gas heavyweights, such as Russia, Iran, Qatar and Algeria – control some two-thirds of the world’s gas supply.
The group has stated that it is not looking to control the formative gas market in terms of pricing and supply, like a kind of gas Opec, but only wants to promote the stability and sustainability of the industry. It has, however, criticised European moves towards a more flexible approach to gas trading, utilising shorter contracts instead of the rigid 15 or 20-year deals that currently dominate. Producers argue that long-term arrangements are necessary in order to attract investment into highly capital-intensive gas projects. Failure to invest in new infrastructure will result in supply shortages further down the line.

The global gas market is on the verge of transformation. Power companies are switching their production to gas, while in some forward-thinking cities, such as Cairo, compressed natural gas (CNG) fuelling stations are springing up to supply motorists. If the politicians and businessmen can sort out the complexities of getting the gas to where it is needed, and iron out the legal and financial issues, then its future as a key source of energy looks secure.