Big Oil morphs into Big Gas

December 22, 2015

The author is a Reuters Breakingviews columnist.  The opinions expressed are her own.

This coming year, “Big Oil” becomes “Big Gas”. It’s common sense: gas is generally more accessible than the black stuff, and it’s also a cleaner-burning fuel than oil or coal. Royal Dutch Shell has already made the transition with its $70 billion purchase of gas-heavy BG. The dash to gas will accelerate in 2016.

About half of Shell’s production is from gas, but BG should tilt the balance. French major Total’s production was 52 percent gas last year, up from 35 percent in 2005. Meanwhile, UK group BP says it hopes gas will expand to as much as 60 percent of production by the end of the decade, from about half today. Based on current commercial projects, Italy’s Eni will have the highest proportion of gas out of all the majors by 2025, according to forecasts by Wood Mackenzie.

Companies are making a virtue out of a necessity. Most of the world’s oil reserves are tied up in difficult to access countries. North America’s bountiful shale is dominated by smaller independents. Meanwhile, gas is plentiful, and large-scale projects tend to have longer lifespans than oily ones.

Gas is relatively clean: it produces about half the carbon emissions of coal when generating power. BP expects coal to be the slowest growing fossil fuel over the next 20 years, partly as gas supplies help squeeze coal out of power generation. The International Energy Agency predicts gas will experience the highest growth in demand for fossil fuels to 2040, thanks to China and the Middle East. Liquid natural gas might increasingly be used as marine and road transport fuels, which are mainly oil-based.

But gas still faces two challenges. The first is competition from increasingly efficient renewable energy. Being more palatable than coal is one thing, but nuclear and renewable energy are still cleaner. In some parts of the world, solar energy is cheaper than imported liquid natural gas. Much as coal has become a dirty word, it is also far cheaper to produce.

That feeds into a second, related challenge. Big gas projects, particularly LNG, require huge sums of upfront capital and projects are often dogged by cost overruns. The plunging price of oil and other commodities mean that while gas is abundant, capital definitely isn’t. The formation of gaseous corporate giants should mean companies can apply economies of scale to bring down those costs over time. If that goes according to plan, there is every reason to believe gas will float to the top of the energy agenda.

3 comments

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Natural gas needs no refining, and is shipped right to homes via pipes (rather than trains, trucks and somali-fragile tankers).

Natural gas is the future of cars. Oil is dead.

Posted by Solidar | Report as abusive

Most oil/gas companies operating in North America (Exxon, BP, Shell, etc.) have already switched their vehicle fleets to natural gas. It requires no new engine, just a small conversion kit and tank upgrade. The engines last longer, the fuel is cheaper per mile, and burns cleaner.

They see the writing on the wall. Oil is dying.

Posted by Solidar | Report as abusive

Interesting, and timely article given the news today about oil prices plunging again. If the US had a coherent Federal energy policy (and we do not) natural gas burning automobiles would be encouraged.

The only thing in this piece I take issue with is the popular but silly phrase “increasingly efficient renewable energy.” There is no substitute for oil and gas and the efficiency of solar, wind, biomass, etc is horrible by comparison.

But great article.

Posted by nmg_no | Report as abusive