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* Gas to become the fuel of choice

But The Huge Risks in LNG Business mean That Boom is not yet certain to happen

Even as headlines scream about $50 a barrel oil. Energy firms and their investors are becoming in creasingly excited about its likeliest replacement: not wind nor wave nor solar power, but gas –or, to be precise, gas that is frozen and transported as lique fied natural gas (LNG).
This is expected to become as ubiquitous and crucial to the global economy as petroleum is today. Scenario planners at royal Dutch/ Shell think that gas may surpass oil as the world’s most important energy source by 2025.

Rising prominence

The rise of LNG promises to change that. Put simply, gas can be frozen into liquid form near its source, shipped to market in refrigerated tankers, warmed back into gaseous form on foreign shores and injected into the local pipeline system. Thanks to this technological advance, gas has the potential to be a fungible, global commodity like oil.

From opec to Ogec

This is not the first natural gas “ crisis “ In the 1970s, fears of global gas scarcity led many governments to ban the use of gas in electricity generation. Price controls at the wellhead in US held back the development of new supplies. Yet

The capital expenditure needed to build spare LNG capacity is so much larger than that for oil that nobody with any sense will do this. Firms with control over local pipelines may well exercise some market power, but a global gas cartel is unlikely.

Surprise

Still, it will be surprising if LNG imports do not ultimately lower US gas prices below $5 per mBtu from to day’s over $6. LNG is usually profitable at $3.50 (BG, a British firm, says it is profitable at $2.50) so there is plenty of incentive to invest in capacity at to day’s prices – as long as local planning rules and safety fears do not stop.LNG terminals being built.
What of the third comparison with oil: the threat that a new group will be established, a gas version of Opec? Around three – quarters of the world’s proven gas reserves are in the for mer Soviet Union and the rising LNG imports may give Russia, the king market power from around 2020. Maybe, But there are several reasons not to expect an OGEC gas cartel.

Forecast

Despite the current optimism, the huge political and financial risks inherent in the LNG business mean that the boom is not yet certain to happen. The capital required is huge the number of firms with deep enough pockets very small and the memory of the earlier gas- Price collapse induced by US’s deregulation is fresh, as Malcolm Brinded of Shell puts it, “ our hopes have been dashed before.”
Yet, at today’s prices, the potential rewards are fabulous for those firms with the courage, capital and complete LNG projects. As Brinded himself concludes, “gas” will be the fuel of choice for at least the first half of this century (and) flexible, long – distance supplies of LNG are the key.” Get ready for a $100 billion investment boom, the prelude to the “century of natural

(Source: Gulf News)