CyprusGasNews May 2014 CyprusGasNews for June 2014 | Page 15

trast, owing to the inability of
oil to flow freely in rock formations, only about 30pct of the
oil from underground reservoirs is possible to extract with
prevailing technology.
Furthermore, natural gas
contains only traces of sulphur.
Thus when burned natural gas
releases minute volumes of
sulphur dioxide (SO2) implicat-

ed with acid rain. Oil and coal
combustion though could emit
as high as 500 and 1,175 parts
of SO2 per MMBtu. Heavy use
of coal in emerging economies,
such as China, is partly to
blame for urban pollution and
smog which contribute to the
premature deaths toll.
Natural Gas as a Future Fuel?
In 2011, the International Energy Agency (IEA) dubbed the
time horizon from 2011 to 2035
the “Golden era” of natural
gas. By virtue of their nature,
predictions carry a certain degree of uncertainty and run the
risk of falling short of reality. Already by 2010 EU natural gas

America is currently reaping
the fruits of the natural gas
boom which caused gas prices
to plummet from $9/MMBtu in
2009 to its current cost of $4.5/
MMbtu.
It might be the case that coal
remains the dominant fuel of
choice for power generation
yet natural gas will assume
more appeal as gas prices
are predicted to further fall. Of
course the fundamental principles of supply and demand will
define things without excluding
unexpected events. As history
has shown, the inelastic nature
of Liquefied Natural Gas (LNG)
in terms of export volumes can
play a decisive role in shaping
world prices. Prime example
being the Fukushima nuclear
incident, in 2011, which forced
Japan to buy LNG from the
spot market at a premium price
of $17/MMBtu.
Although the majority of LNG
exports are tied to long term
contracts (e.g., 15 year), an
LNG glut which shift market
dynamics towards the spot
market. Especially in an oversupplied natural gas market
consumers will assume more
leverage in terms of decoupling
oil-indexed natural gas contracts. This is the case in the
EU and Asian market where
gas-to-gas competition has yet
to assume prominence.
Striking a Balance Between
Prosperity and Environmental
Footprint
Liquefied Natural Gas (LNG)
exports from places like
Australia, Canada, Eastern
Mediterranean, and East Africa
are expected to soar in the
next decade. Considering the
cleaner nature of natural gas it
is prudent for power generation

companies to burn more natural rather than coal. It might
be the case that coal makes
more economic sense for the
near-term profitability of power
generation companies. However, when the environmental
footprint of a fuel, which may
take the form of a carbon tax,
will be unavoidably added to
the fuel prices then the aggregate costs to power companies
relying on coal will surpass the
costs from natural gas.
Due to its “greener” credentials, natural gas is poised to
become the fuel of choice of
the future despite coal continuing to rein in the emerging world. Urban atmospheric
pollution will catalyse progress
away from coal and towards
natural gas. Natural gas is expected to establish itself as a
“bridge” or transitory fuel in the
world energy mix. The abundance of natural gas will surely
help power the world economy
for several decades to come.
Challenging the dominance of
fossil fuels will require another
“disruptive” energy source
analogous to what happened
when oil replaced coal in Royal
Navy’s naval vessels in 1912.
Today, world prosperity rests
on a fragile balance between
the most economically attractive, environmentally benign
and convenient energy source.
Until the decarbonisation of
the world economy, if that ever
happens, natural gas qualifies
as a transition fuel.
*Lecturer at the University
of Nicosia & faculty teaching
member at the University of
Cyprus.

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