FORTNIGHTLY OVERVIEW
When oil is cheaper than ‘ normal ’ – which it has been since mid-2014 , to take a convenient seismic shift – and gas is already cheap , the incentive to use gas for transport is less , all things being equal .
However , while the wholesale price difference between the two sources of energy may have shrunk , and governments are still in need of dependable sources of revenue which must come from gas if not oil , now there are other imperatives .
The physical health of the public – and the planet – is a big part of the picture too .
The last few days have been filled with COP21-related news , with the EU ratifying the historic , if unenforceable agreement reached in Paris last year ; the Clean Power Plan threatening fossil fuel generation in the US ; and Canada pledging a carbon tax or cap-and-trade scheme , for example .
These actions reflect the determination of major economies to decarbonise the atmosphere ; and it might be that the transportation sector has unexpectedly become an even-lower-hanging fruit than the power sector .
In many regions of the world , it is apparently no longer the universal sink for the world ’ s surplus gas .
That said , there are bright prospects for coastal regions currently deprived of cheap and clean fuel for powergeneration , with Africa proving a rich demand source whether for pipeline or LNG imports .
A few years ago , when the debate began – in Europe , at least – about how to introduce gas into marine transportation , one question was how to price LNG as a bunkering fuel : as hub plus ( to cover the cost of liquefaction ) or marine gasoil minus – to encourage the shift to gas , very much as long-term pipeline contracts were devised in Europe , to give the nascent gas industry a helping hand .
That is no longer a theoretical debate between fleet operators seeking longterm predictability in a commodity they know and can hedge ( MGO- ) and those with spare gas on their hands ( hub +).
Governments and regulators have imposed strict emissions of not only CO₂ but of other oxides too .
The majors , always looking for an outlet for what they produce , have stepped up their efforts in the US , Europe and Asia ; and fleet owners are now adding vessels to run solely on LNG , as confidence in the long-term availability of affordable gas is growing .
That said , a higher oil price relative to gas would help make the move to LNG more tempting and the surprising results from the Algiers meeting , attended by Opec energy ministers with opposing political world-views in late September , may just have that impact .
Discussions about the need to either lower the cartel ’ s production levels , or at worst not raise them from their present near maximums , have had the useful effect of ramping up the crude price for several weeks at a time this year and prices are now above $ 50 / b .
A formal and enforceable decision by Opec to act in unison in November , supposing it happens , will make it easier to shift more of the world ’ s energy demand from products to gas .
Too bullish a signal though , and the rise in prices will either draw marginal production back on ; or make renewables even more attractive .
European demand falling
Among the companies doing the most work promoting this new line of gas business are the majors , Shell and Exxon , long-term partners in the now moribund European gas market and still partowners of Dutch marketer GasTerra .
Whether association with Russia has tainted the fuel ’ s reputation , or technological improvements have now reached the level of sophistication necessary to entrust a nation ’ s economic health to renewables and energy storage , or the industry that used so much of it is no longer competitive with other countries , the mood is gloomy in the European gas industry .
While GasTerra is engaged with customers such as Italy ’ s Eni and French Engie over their take-or-pay contracts signed in the last decade , it accepts that the game is up and gas demand down , thanks to heat pumps , biogas and other ways of generating heat at non-industrial temperatures .
It has even appointed an energy transition manager , Hans Overdiep , whose task appears to be slowing down the flight from gas as much as possible : “ We are very interested in contributing to a smart and sensible transition to alternative energy sources , together with other stakeholders . It is quite difficult , because sometimes we deal with conflicting interests , but I expect that we will be able to sort out our differences . It is matter of give and take ,” he told a Dutch journal early September .
“ Most homes will be able to do without natural gas somewhere around the middle of this century . In new housing developments , ‘ all-electric ’ is already sufficient , thanks to better insulation and the use of heat pumps . In existing houses , it is not wise to simply turn off the gas supply overnight ,” he adds , just in case that was thought a possiblity .
Its French counterparty in the price dispute is hoping to hasten the arrival of this day : last month , it bought a 6.6 % stake in German Heliatek , saying it was “ particularly interested ” in its integration of photovoltaic solar film for buildings .
This technology matches Engie ’ s ambition to become an “ energy architect ” for buildings and to contribute to growing clients demand for buildings with zero CO₂ emissions and zero energy consumption ,” it says .
A week later it won a tender in Mexico , to supply 209 MW at “ very competitive prices for solar and wind energy projects .”
The Mexican government , which has not abandoned hope in its offshore , aims to increase the share of renewables in its energy mix to 25 % in 2018 and 60 % by 2050 .
Compatriot Total is already investing heavily in solar and other renewable technology , all of which makes the gas market a more challenging place for gas producers .
And Eni is busily pursuing renewables in north Africa – but apparently in order to free gas up to be used for other things than power generation .
NGW