“The bad news is we didn’t strike oil. The good news is we didn’t find gas.” This old in-joke among oilmen would meet with raised eyebrows if it were cracked today. In the space of just three decades, natural gas, previously reserved for the most “noble” of industrial uses, has become popular for a whole host of uses including, in particular, power generation and household energy. The gradual decline in natural gas reserves in the OECD countries combined with a growing demand for more environmentally friendly energy and a wide range of key technological breakthroughs have opened up a huge number of transport and hence selling options for natural gas. At the end of the 1990s, industry observers predicted that demand for gas would grow at about 3% per year. The most recent forecasts put growth at about 2% per year through to 2020, compared with an estimated 1.3% for oil. So gas is expected to gain the fastest ground in the overall energy mix.

Over the last ten years, power generation has becoming the driving force behind global growth in gas demand, accounting for half the increase. Some 40% of power generation is fuelled by coal, 25% by gas and 13% by nuclear energy, and power is a very competitive segment. The recent rise in gas prices, triggered by their indexation to oil prices, has undercut further moves to gas while coal prices have remained relatively stable. Nevertheless, gas is expected to overtake coal as the number two primary energy with about 23% of world demand by 2030. Six countries alone account for half of the world’s gas consumption: the United States (23%) and Russia (15%), followed by the United Kingdom, Canada, Germany and Iran with just over 3% each.

For the time being, there is no truly global gas market as there is for oil, but three separate markets – North America, Western Europe and Asia – with very different growth rates. The mature North American and European gas markets, where gas accounts for 25% of primary energy, could continue to grow at a rate of some 1% and 1.4% respectively. In the non-OECD countries, gas demand is forecast to grow 3.7% per year through to 2020. Gas in these countries has a far smaller market share than in the industrialised countries, so industry is slated as the big gas growth driver.

The Asian countries, such as India and Indonesia, are forecast to see a sharp upturn in gas consumption, both as fuel and feedstock for the manufacture of urea and ammonia. India is gearing up to meet demand growth and already has plans for a number of regasification terminals. In the Middle East, gas will be used more and more in seawater desalination plants and generally in most industries that currently use oil as their energy source. Africa and Latin America, for their part, could post demand growth of some 4%. Numerous countries are switching more to gas to meet a need to diversify their energy supply and curb climate change. And gas has another very big advantage: there’s a lot of it!

Abundant reserves

Active oil exploration began in the early 20th century, but gas exploration is a much more recent phenomenon. Interest in gas exploration has grown as natural gas has moved up the world energy mix ladder. New discoveries, major technological breakthroughs and access to the deep offshore have been steadily driving up the world’s gas reserves since 1975, when they were estimated at 60 trillion cubic metres or Tm³ . On 1 January 2005, world gas reserves stood at 180 Tm³ , representing a reserve life of 65 years at 2005 consumption levels. As with oil, gas reserves are concentrated in three main countries, but the gas trio is different: Russia (27%), Iran (15%) and Qatar (13%). Between them, these countries possess more than half the world’s reserves. Some 80% of the world’s gas is found in about 20 countries, compared with around ten countries for oil reserves. For example, although the Middle East produces 30% of the world’s oil, it puts out just 10% of the gas.

Then there is the fact that much of the gas reserves already discovered are still “pending development”. There are significant reserves in Russia, Algeria, Iran and Saudi Arabia that have been left in the ground until demand is strong enough to generate the necessary investment finance. The International Energy Agency reckons that the world’s gas industry will need to invest an average of $150 billion per year in infrastructure between now and 2030. A large part of this will probably go to North America, where demand is growing but construction costs are high. More uncertain is the level of investment in Russia, where the older giant fields supplying gas to Europe are now in decline and new fields need to be brought on stream.

The late development of gas exploration points to even more of a question mark over gas reserves remaining to be discovered than remaining oil reserves, especially when it comes to deep gas and non-conventional gases. Observers estimate that between 50 Tm³ and 100 Tm³ could be discovered in the coming years. Offshore zones have significant potential here, especially the deep offshore and the Arctic zones, where gas exploration-production operations have benefited from the technological advances made by oil teams. Certain countries, such as Egypt, are moving ahead very fast in this area.

Non-conventional gas resources include coal-bed methane, tight gas (gas in low-permeability sandstone reservoirs) and shale gas. A lot of work has been done on these in the United States, where non-conventional gas accounts for nearly a third of domestic production. On a world scale, resources of coal-bed methane are estimated at 100 Tm³ to 260 Tm³ . Producing this gas can have a positive environmental impact because recovery can be improved by injecting CO₂ into the lower levels, thus also providing a carbon sequestration solution. Yet there are two major obstacles to coal-bed methane production: the “reservoir” characteristics of the coal beds and the huge amounts of produced water to be treated. Tight gas sands is the rather vague term used for sandstone gas reservoirs with very low permeability (less than 0.1 millidarcy). Low permeability means that the gas moves only with great difficulty inside the formation, making production using conventional techniques uneconomical. Tight gas resources have been estimated at about 400 Tm³ . Shale reservoirs also concern low-permeability rock, but the gas is “free” or “stuck” to organic particles (like coal-bed methane). Resources of shale gas are thought to stand at 40 Tm³ .

Half of the development projects in North America over the next ten to twenty years could be aimed at producing these non-conventional gas resources. The United States, which passed its gas production peak not long ago, is the leading player in exploration and production of coal-bed methane, tight gas and shale gas.

Although the industry knows how to produce coal-bed gas and the gases contained in shale and sand reservoirs, the techniques for producing gas hydrates have yet to be mastered and there is no industrial production of these resources. These crystalline substances are made up of water molecules structured into cages that trap methane molecules in solid form. There could be up to 20,000 Tm³ of gas hydrate resources waiting to be tapped (70 to 130 times more than proven reserves of conventional natural gas). Valorisation of these gas resources, usually located in offshore zones, would enable certain countries that currently import gas to become major gas producers. Examples here are Japan and India. Other countries such as Canada, the United States, Australia and France have shown their interest in gas hydrates by carrying out numerous studies of these resources. At the end of the day, though, the volume of methane likely to be able to be produced economically is very hard to estimate and a subject for much debate.

One possible substitute for oil

There have been a number of advances in the field of gas transport. The liquefied natural gas (LNG) industry has developed more efficient processes that have lowered liquefaction costs. Another positive trend has been the increase in LNG carrier capacity, which brings cost reductions via economies of scale. Today’s LNG vessels can carry up to 140,000 m³ . This capacity is expected to reach 250,000 m³ over the next ten years.

Regasification has been moving forward with the latest development being to put the regasification plant aboard the LNG carrier rather than on land to avoid complaints from nearby communities. There are also plans to install liquefaction plants on barges, which would be a particularly good way of valorising small offshore gas deposits located far from consumer zones (some 10% of world gas reserves). New solutions are also being sought for gas transport over shorter distances of 500 km to 1,000 km. For example, studies are underway on compressed natural gas, which could be exported from the Middle East to India.