While global energy consumption has remained almost static since 1990, demand for natural gas has continued to rise: its share of the primary energy market across the world has now reached 23% (or over 70 trillion cubic feet (tco in volume terns) according to the 1994 BP review of world gas. In 1993 gas was the only primary fossil he1 to show growth in total world consumption, remaining robust overall and capturing an increased share of every regional energy market. While demand in the Fonner Soviet Union (FSU) fell by over 5%, buoyant growth elsewhere was more than enough to compensate, yielding a global uplift of 1.4%. The stronger demand came fiom both the domestic sector, where a combination of population growth and continued extension of gas grids meant a greater requirement in both developed and emerging countries, and, the industrial sector, where demand for gas grew as a source of both heat and power generation. In the latter sector, lower plant cost, shorter build time and the superior conversion efficiency of gas fired CCGT have fhdamentally increased the attractiveness of gas relative to other fossil hels. Also, the environmental benefits of gas are becoming gradually more important as green legislation is implemented across the world. Combined with the convenience of gas once the infrastructure is in place, a strong potential demand is created generally if supplies can be made available at prices which are competitive with other hels. Notably, the economics of gas transportation have led to gas supply infrastructure being developed on a regional basis, firing the need for production to be tailored to anticipate consumption also on a regional basis; and this was the case in 1993. As far as reserves are concerned, new gas finds continued to exceed production: the balance for 1993 leaving reserves up 2.7% at end-year, sufficient to supply world markets for 67 years at present production rates. The Middle East and the FSU together continued to dominate the reserves scene with over 71% of known gas supplies.
International trade in natural gas accounted for more than 11.5 tcf in 1993. Both pipeline gas and liquefied natural gas (LNG) trade rose in that year and together accounted for some 16% of total world consumption. Of this, around three-quarters was pipeline gas and the remainder LNG. The FSU is still the world’s biggest gas exporter, accounting for some 29% of total exports, followed by Canada with 18%. The main importer is the USA with 19% of total trade followed by dermany and Japan. Pipeline exports from the FSU increased, mainly to the benefit of Western Europe. Canadian pipeline exports to the USA continued to rise sharply and now account for more than 10% of US demand. LNG trade is centred mainly in the Asia-Pacific region with about two thirds of exports destined for Japan, principally fiom Indonesia, Brunei, Malaysia and Australia but also fiom Abu Dhabi and the USA. Some 38% of LNG exports are from just one country, Indonesia. LNG trade as a proportion of world natural gas trade has more than doubled since the mid-1970s. In 1993 it rose to 2.98 tcf, equivalent to more than 25% of total trade. This increase is lower than in previous years, miainly as a result of economic recession in Japan.
Outside the US, Canada and MexicoICentral America pipeline mileage construction in 1993 was down to 2,434 miles, with the estimate for 1994 set at 8,893 miles, valued at $10.35 billion. This pace is expected to be maintained throughout the rest of the 1990s pushed by the growing domination of natural gas described earlier in this Overview. Analysis of international pipeline development shows that some 22,000 miles of gas transmission lines could be constructed over the next three years, of which 7,770 miles were underway at the end of 1994.
Beyond the next three year horizon there is a krther 3 1,869 miles of construction in prospect reflecting the number of lengthy projects being considered to move gas thousands of miles from producing countries to potential consuming markets. More impressively, if oil -crude and products – is combined with gas then more than 83,000 miles of projects are under contract or planned for hture construction.
The development of the gas market in 1994 has served to reinforce the move towards the dominance of the &el which was described in the 1993 Overview, with particular emphasis being attached to the tilt to gas in national energy policies, and, the expansion and regionalisation of domestic gas distribution grids. There has been confirmation of the three major trends seen as transparent evidence for the growing importance of gas; namely: gas markets are certainly developing along continental or subcontinental lines; LNG continues to securely provide interregional supplies while awaiting the provision of pipeline grids; and the trend towards competition (often through the privatisation of government enterprise) shows no sign of abating. Unfortunately, the negative aspects of nationalism and protectionism – plus the degree of political instability identified in last year’s survey – cannot be said to have improved materially; in particular, womes must be expressed about the position within the FSU and, indeed, within Russia itself. At the same time it is clear that govenunental regulatory authority over environmental protection has gained momentum in both the developed and the developing world. Environmental awareness and potential liabilities have changed the way pipeline construction contractors undertake their work and the way business is conducted.
Gas markets in Europe are highly diverse with significant change been experienced across the board. While more mature markets such as those in the UK and in Germany are gradually deregulated, and Eastern European gas authorities are reformed and in some cases privatised, southern European countries such as Spain, Portugal and Turkey are seeking to expand their limited gas networks.
Gas consumption continued to grow throughout most of Europe, led by the UK where the demand from. new gas fired power generating capacity resulted in a 15.2% increase. Rejuvenation of former Conlicom economies was reflected in renewed demand growth, and the extension of the gas grid in the former GDR contributed to the 5% increase in German demand. Relatively flat Spanish consumption resulted fiom constrained supply rather than lack of demand. According to many reports, the demand for gas will increase throughout the second half of the 1990s. Some industry estimates indicate that more than 40% of European Union consumption will be supplied from outside the Union.
While demand for natural gas in the region has grown, as indicated above, financial and political obstacles have to be overcome before key pipeline systems can be built. It is this growing demand for clean-burning fkel throughout Europe that is driving construction of natural gas projects From the FSU, North Africa and the North Sea. Extreme distances of gas reserves from the area of demand means that substantial investments for more varied sources are required to bring natural gas to market. In Europe, most of the current – 1,666 miles – and fkture – 10,540.miles – work relates to transporting natural gas From North Sea and Algerian sources. Zeepipe 2, Europipe and Haltenpipe now share the spotlight with the urope – Maghreb activity. Statoil hopes to convince other Zeepipe owners to alter phase 2 of that system in order to provide additional capacity. The Europe – Maghreb project is looking at extending into France and Germany. And Middle East producers are examining potential routes to Europe. Looking east, rebuilding and development programs are taking place in Europe to transport and distribute gas (along with crude oil), associated with which is the Gaz de France study of ways to integrate the centrdeastern European gas networks with those of western Europe. Russia’s Gazprom continues to plan new lines fiom Siberia and has reached agreement with Poland on pipeline transit through that country to Germany and construction work has commenced.
Over-arching all of this progress is the relentless pressure for higher priced gas which clearly is a factor affecting the growth of the pipeline construction industry. Within the European Union there are efforts to make energy prices competitive for less fortunate members of the union. However, producers and pipeline builders maintain that higher costs justify higher prices. Providing the resources needed to develop the new generation of large fields e.g. offshore northern Norway, in the Caspian Sea area and fiom the Yamal Peninsula, and to bring gas to market, will be a major industry test.
Former Soviet Union (FSU)
FSU gas consumption fell for the third consecutive year, notably in Russia and the Ukraine, driven largely by lower deliveries to power stations. Energy consumption remained relatively high throughout the FSU in an environment of declining GDP and gas’s share of total energy usage increased to nearly 48%. Exports fiom the FSU grew slightly although disputes continued between Russia and Ukraine over payment for gas sales and carriage. The increase in exports was not enough, however, to offset the decline in internal demand, resulting in a fall in production. Russia supplied an increased share of the FSVs net gas exports. Elsewhere, Turkmenistan’s output redovered slightly fiom its 1992 low level and its production increase was absorbed by the other FSU republics.
Pipeline conditions in the FSU remain unsettled. Considerable western interest has been expressed in gas (and oil) operations, and several joint operating agreements have been signed. However, activity has declined due to continued economic crisis – current work amounts to 540 miles – but interest remains high on a number of new projects and rehabilitation of existing lines: fbture work forecast is 5,537 miles. A number of large-diameter lines to move gas to Europe, Korea, Japan and China are on the drawing board. Due to economics and political influences, the direction of these lines are in a continuous state of change. Two trans-Siberian lines, already referred to under Europe above, are in the planning state. Each line, from the Yamal Peninsula to markets in Europe, would be an estimated 1,864 miles long. However, all is not plain sailing for Russia’s far east gas development projects. Clearly a key factor in establishing a gas pipeline network in northeast Asia is finance, and regional politics will influence financial decisions. If the final verdict on the silk route project (Turkmenistan – China Tarim), about which much is written elsewhere in this survey, is positive, substantial quantities of Turkenistan gas could reach northeast Asia by 2001. Under these circumstances, a serious delay in east Siberian, (and Yakutian) gas development will be inevitable.
In 1993, gas met close to 20% of South America’s primary energy demand. Despite steady additions to identified reserves, the region’s gas production has remained modest and been concentrated in Argentina and Venezuela. Limited international transportation infrastructure has led to gas consumption being similarly localised. Argentina has, for the moment, the only developed residentiaVcommercial gas sector, although slightly more gas goes to its power generating industry while Venezuela demand is led by local chemical and heavy industries. This pattern, however, may change as economic growth and increasing environmental concern drives gas penetration upwards in several countries (such as Chile) following the 7.5% jump in demand in 1993 across the region. In Argentina, where gas exceeds 40% of energy consumption, European investors in the privatised gas network have announced major ixhstructure investment plans, including a potential pipeline to Chile. In Columbia, dependence on hydroelectricity has led to unreliable power supply during droughts: the doubling of the country’s known gas reserves over the past three years may offer a tempting alternative. Environmental factors are particularly important in Chile and Brazil where air quality in the cities has become a concern to the extent that indigenous gas resources may be exploited. In the meantime Brazil has signed an import agreement with Bolivia, and discussions are in hand about joint development with Argentina of this latter country’s reserves close to the Brazilian border.
All of this serves to emphasise the point, brought out in the previous survey, that regional pipelining here ranks among the most interesting in the world given the history of nationalistic government tendencies and long standing disputes over international borders. However, moves to integrate economics have side lined many of these problems with a number of international projects in the planning stage. Work currently in hand amounts to 480 miles of pipeline while that associated with fbture projects totals 8,062 miles. Several of these latter projects, such as Bolivia to Brazil, Argentina to Chile, and, Argentina to Uruguay/Pamguay, now reaching the front burner, have been under consideration for ten years and longer.
Pacific Rim and Far East
These two geographic blocks, considered separately for reporting purposes in the detail of this survey, are ofien otherwise described as Asia Pacific. Asia Pacific comprises a number of distinct regions, from the Indian Subcontinent to Australasia, incorporating some of the richest as well as some of the world’s poorest nations. It is characterised by diverse economies at different stages of economic development, reflected in the varying maturities of their gas markets. The region cames half the world’s population, but presently only consumes a quarter of its primary energy. Economic growth and increasing urbanisation are likely to drive energy demand in the less developed Far Eastern countries towards the levels of their wealthier neighbours. After several years of rapid growth in excess of 6% a year, gas demand across the region rose by a more modest 3.8% in 1993. This was largely a result of significant slowing of demand growth in Japan due to disadvantageous climatic and economic conditions. Other countries, such as Malaysia and Thailand, continued to record gas growth rates of more than 10% mainly driven by demand for power generation. Significantly, the Chinese economy has achieved rapid growth but this has not been reflected in its gas demand due to a combination of improved energy efficiency, reduced energy intensity and artificially low prices. For Asia Pacific, it tias to be remembered that, in the absence of a developed pipeline structure, and, given the heavy dependence of Japan especially upon LNG imports, meeting demand puts pressure on production: in 1993 production rose slightly more quickly then consumption.
Throughout the region natural gas is kelling the drive to build pipe lines to meet internal and external demands. In the South Pacific, Australia’s future plans involve a number of projects that eventually will develop into a national gas grid. In south-east Asia, Malaysia and Thailand have major pipelines underway or planned to meet internal power generation needs as well as for export to yield much needed revenue. In the Far East, Japan and Korea are seeking help from long distance, large-diameter lines to bring in gas from other regions, particularly FSU gas.
Taking the region as a whole 3,338 miles of pipeline work is currently in hand while a massive 20,692 miles is classified as h r e workload. This reflects the fact that long distance gas transmission, gathering and lateral networks, along with substantial – if tentative – projects to supply FSU gas to Korea and Japan, hold the fbture for pipeline construction. In this category is the out-of-favour 4,865 mile Trans Asean system although individual countries are moving ahead with projects that could serve as major links should the proposal resurface later. The most ambitious plans are being laid by East Asian interests with Asian companies participating in mainly Middle East gas projects as customers, financiers and suppliers. Plans abound – especially concerning the Subcontinent – for pipeline (and LNG) projects. However, in many of these cases, there are difficult political, as well as commercial, obstacles to be overcome. On the other hand, probably the most comprehensive proposal to date is for an Asian pipeline grid extending from Alaska to Australia and westward as far as Kazakhstan. It is now generally recognised that such a system might more realistically evolve naturally if the smaller domestic systems proposed for Thailand, Indonesia, China, Malaysia, Japan and Korea were to be developed and then subsequently linked to each other in response to economic needs. For example, China is expanding its pipeline systems with more outside help than ever in its history. By end 1993, 4,800 miles of natural gas lines had been built while the country’s open-door orientation includes a 2,100 mile joint venture gas line from mid-Asia (in Turkmenistan) to China’s eastern coastal provinces where the gas would be liquefied for export.
Middle East and Africa
The Middle East accounts for under 5% of global gas consumption despite holding over 30% of world gas reserves. Demand, concentrated in Iran, Saudi Arabia and the United Arab Emirates, comes mainly from the power generating and industrial sectors, distribution networks to commercial and residential consumers being limited. Distance from the main gas consuming markets creates a considerable barrier to export: although a number of major projects are under consideration, the costs and risks involved are substantial. At the moment the only significant international gas trade is Abu Dhabi’s export of LNG to Japan, although another LNG project is under development in Qatar, which has the world’s largest offshore gas field. As the global gas market continues to show robust growth, possible fhture Middle Eastern exporters include Iran (with the second largest gas reserves in the world) and Oman, whose reserves, although much smaller, have been revised upwards rapidly over the past two years.
In the other part of the region, Africa, gas reserves fell a little in 1993, after a growth of 12% the previous year, and remain concentrated in Algeria, Libya and Nigeria. Algeria is currently the only major producer and consumer of natural gas although Egypt is now moving towards that status. Inevitably commentary revolves around Algeria – in political turmoil – given its history in the LNG export marketplace; investment is currently underway which should substantially increase its gas export volumes, especially by pipeline as rising consumption in Italy has prompted an increase in capacity of the Transmed Pipeline and construction of the Maghreb Europe pipeline.
The Middle East is set to hold a strong pipelining position for current – 555 miles – and future – 5,614 miles – construction to meet internal natural gas demand. Looking outside there are aggressive ambitions with the feature project being Oman’s plans to move gas across the Arabian Sea to India (about which there now seem to be some doubts). Similarly, European gas demand needs coupled with regional requirements are fbelling North Africa as a prime pipeline construction arena. Present activity chalks up 1,19 1 miles of work while through 1995 and beyond things could be really busy with a firther 3,524 miles of construction.