WSJ: The Natural Gas Riddle
WSJ Deal Journal colleague Angel Gonzalez files this dispatch from the IHS CERA energy conference in Houston.
A lot of oil companies agree on the fact that natural gas is the fuel of the future. After all, it’s relatively clean, efficient, and abundant, a friendlier cousin to that environmental bête noire, crude oil.
What nobody seems to agree is how to get there. The market, continuously disrupted by technological strides and political developments, evolves too quickly for many companies to feel reassured about the billionaire investments needed to tap new fields.
Tuesday, at the IHS Cambridge Energy Research Associates’annual conference in Houston, Eni SpA Chief Executive Paolo Scaroni put it in Winston Churchill’s words:
“The future of the gas market,” he said,”has become a riddle wrapped in a mystery inside an enigma.” So many moving parts are changing in the global gas dynamic that it seems impossible to settle on any one vision of the future, he said.
“Global gas consumption is set to grow,” the urbane Italian executive added. “On this I think we’re all in agreement. But how much? What will be the level of this growth?”
The uncertainty underscores the main challenge facing the energy industry: to meet global energy needs it must wager billions of dollars on long-term projects that can be rendered useless overnight by new developments. It’s particularly worrisome in the case of natural gas, talk of which has come to dominate conferences like IHS CERA. It weighs heavily on the investment decisions of giants like Exxon Mobil Corp., which bought XTO Energy in 2010 for $25 billion, and Chevron Corp., which is embarking on one of the costliest energy projects in history in its bid to tap Australian natural gas.
Some mistakes have already been costly. For example, the plethora of U.S. liquefied natural gas terminals that were built in the last decade, at the cost of tens of billions, in the expectations that shiploads of the stuff from Africa and Trinidad would be quickly snapped up by energy-hungry U.S. consumers.
Now, those terminals are sitting mostly empty, as the last decade also saw the unexpected development of domestic shale resources, which have made the U.S. a natural gas superpower with no need for imports. The tables have turned in such a way that some entrepreneurs are now thinking of exporting shale gas from the U.S. to China and Europe, which would require billionaire investments as well. Mr. Scaroni is not so sure this will happen either: the U.S. public could reject the idea, especially if it means that it would pay more for domestic gas prices; also, countries like Poland, China and Argentina are seeking to exploit their own shale resources as well.
But hey, it’s all part of the high-stakes Great Game oil companies play for outstanding profits.Increasing complexity and financial risk, compounded by an ever unstable geopolitical environment, are the new reality of the energy industry, Statoil ASA CEO Helge Lund said in an interview. To be able to remain at the table, oil companies need a bigger balance sheet than can carry them through tough times and unfruitful bets.
“We need a very solid financial position to be able to carry long-term strategies,” Mr. Lund said.