Emerging Economies & How to Build Gas Demand
In a session dedicated to “Gas Developments in Emerging Economies” at the World Gas Conference in Paris, Ali Moshiri, President, Chevron Africa and Latin America E&P, showed a chart of gas demand going to 2035, commenting that about 50% of the growth will come from Asia-Pacific.
Emerging markets, he explained, “are continents and countries that are trying to make that first step toward becoming emerging markets, but there are obstacles that push you back.”
With that in mind, he said he would speak about the amount of gas that is required to push such countries forward. While the bulk of gas import may indeed be going to Asia, Mr. Moshiri pointed out that Africa, Latin America and others also require attention and infrastructure to build the necessary gas demand to turn assist them into the emerging market category.
Conceding that resources are significant – both conventional and unconventional, in North America, Asia, Africa, etc. he posed some questions.
“The key given in this equation is, 'how do we monetize that? And what is the best way of marketing that monetized gas? What are the tools that can be used?'”
Technology has enabled the industry to hurdle any obstacles to doing that, according to him.
“The technology is there, the resources are there, and if you add unconventional resources, there are more natural gas resources available to us that create a necessary market and put some of the countries into the emerging market [category],” explained Mr. Moshiri.
Looking at the three components that are required to make that happen, he contended that the supply side is there. Of the marketing side, he said: “Demand is not created by itself; it also depends on the infrastructure that needs to be built.”
Infrastructure, he said, is required for local marketing, for regional integration and export of the gas as well, “because it's a value chain that has to be created as well, creating a focus on the emerging market.”
It is a question, he said, whether the market or the infrastructure should be built first.
To illustrate that, he said that in Nigeria the government aspires to have an integrated gas economy. He reported, “There is LNG, export pipeline, local gas pipeline – all the components are there.
“But when you look at the gas integration, it's only around the supply of the gas and doesn't extend to the rest of the country. For it to become an emerging country, it is required to expand that infrastructure further into the country: basically, increase the electricity capacity and other components to be able to do that. The resources are there; the infrastructure has to be expanded to get there.”
With sufficient resources, gas can be converted to liquids, he said.
Angola is another example he offered.
“Angola LNG is a very complicated project,” he explained, “using solution gas, converting it into LNG – a portion of the gas goes to the domestic market, while the rest is exported.”
Here, too, it is a question of increasing gas infrastructure, according to Mr. Moshiri.
Numerous investors, he said, can play a significant role in this, mainly in building the infrastructure. “There's a role for national oil companies, IOCs, independents, for the government to be able to put the policy in place, but one fact we need to keep in mind is to be a market-driven business. We can't be subsidized, but purly driven by the economy and market of the country,” he concluded.
Showing a picture of Hong Kong illuminated by night to illustrate the role of gas in developing economies where economic transition is taking rapidly, Shell's Roger Bounds warned that the gas industry should be careful of bold forecasts, given, for example, the reversal of fortune for LNG in the US, where the shale gas revolution had flipped things on their head.
He stated, “An industry that was basing itself around much higher oil prices than we're experiencing in the current environment needs to be careful about forecasts.” Still, he contended that some forecasts the industry can make with self confidence are the growth of the global population, that the world will be more affluence, and people will demand improved quality of life.
“And with that improved quality of life will come energy choices,” said Mr. Bounds, who added that energy from all sources will be required.
This will, he said, require making sensible choices that should be integrated into energy policies that address the challenge of climate change. “These policies, however, can't just address the needs of those countries, markets that've already made the transition into a more affluent society; we have to start at the foundations and address the questions of energy poverty, of enabling access to energy for a wider variety of people, and of dealing with the challenges and opportunities that exist in places like sub-Saharan Africa, where we can take energy to people who currently have no access to reliable power without which cannot really make aspirations to improve the quality of life.
“The relationship between energy poverty, infant mortality, slower economic growth and poorer health is well established, so the ability to bring more energy to these parties, to stimulate employment and growth, and with that stimulation, bring enhanced energy integration into people's lives is one of the challenges that we all need to work on together,” he continued.
According to Mr. Bounds, this challenge doesn't rest on any one particular energy company, nor within one government, but requires a multilateral, integrated approach. He added that with appropriate transmission mechanisms, investment climate and price signals there is the opportunity to resolve energy poverty within any particular region.
“We see that gas, in particular, plays a role in this area. Gas, adopted as a foundation fuel, allows the transition from solid fuels into more flexible, complementary fuels sources which are needed in the global energy system as well.”
Referring to rapid areas of urbanization in Asia, where there is fast economic growth, he said: “Populations are moving from rural areas into urban ones and adopting transport, living in condominiums and high rises with more access to white goods – better demand per capita for energy. But at the same time, as this moves forward, what we also see is that the easy choices, the accessible choices, may not be the best choices for the long run,” he explained.
For example, he said the easy choice of adopting cheap and accessible coal will increase coal-fired power stations and energy systems built up around the transmission of electricity from coal, could lock-in to the wrong energy choice for decades to come. He offered, “Integrated planning which allows combined heat and power, renewable energy and gas as a preferred fuel target is the best way of addressing the development challenges of such cities and enhance the economic growth and welfare being discussed.”
Giving mention to the Ukraine crisis, the UN Economic Commission for Europe's Executive Secretary & Under-Secretary-General, Christian Friis-Bach, said that many countries are breaking gas ties and becoming more independent. “But, if we've learned anything from history, it is that if we want peace and progress in Europe, we must do the opposite: strengthen ties between countries in Europe and make countries depend on each other, and a greater and interconnected energy system will be a crucial part of this,” he said, recalling the coal and steel unions' had been part of peace building in the wake of World War II.
“We need energy markets, once again, to unite us. And gas will play a role in achieving this.”
Such interconnection, he contended, is also good for economics. “We are leaving a lot of money on the table,” he quipped. “We need properly-balanced, designed markets that value flexibility, but if they are national, they are sub-optimal.”
Such markets are key to the emerging markets of Eastern Europe and Central Asia. “And gas and LNG can help us achieve this even globally,” he added.
Meanwhile, according to Mr. Friis-Bach, the world is on an extremely dangerous path towards an unstable, unpredictable climate, but it is certain that fossil fuels will be around for decades, especially in emerging economies.
He said, “Natural gas can help us to make the transition, but we will only reach the 2 C degree pathway if we use carbon capture and storage (CCS). Introducing CCS, we can turn the entire fossil fuel industry into being part of the solution instead of, as it is today, being seen as only part of the problem.”
That, he contended, will change the dynamics at the Paris climate change talks in December.
The UNEC, he said, has developed recommendations on CCS and is urging others to back them.
If connected energy markets are built, he said, joint standards and best practices are necessary, just as the UNEC has done, for example, for the energy efficiency and safety of cars, for one.
Mr. Friis-Bach reported that the UNEC has also developed a classification scheme for energy resources, regardless of their origin, to facilitate efficient, appropriate investments into them. Meanwhile, the organization is still at work on developing standards for gas, for emerging markets as well.
-Drew Leifheit