TPT September 2018

G LOBA L MARKE T P L AC E

Natural gas, seen as a “clean bridge” from coal to renewables, offers the best long-term demand growth among fossil fuels, particularly in its easy-to-transport liquefied form. At the same time, gas exploration comes with high upfront costs and long payback periods. Wrote the Bloomberg reporters, “How the majors handle those issues will become key drivers for success moving forward.” (“Future of Big Oil Increasingly Shaped by Fate of Global Gas,” 25 June) Among the companies seizing the initiative are Royal Dutch Shell plc and BP plc, both of which boosted their proportion of gas output in recent years and thus narrowed Exxon Mobil Corp’s lead as the world’s most valuable oil company. Meanwhile Chevron Corp added two giant Australian liquefied natural gas (LNG) projects, and Exxon is advancing two major projects of its own, in Papua New Guinea and Mozambique. “We see the market growing rapidly, with gas demand growing faster than overall energy demand,” Steve Hill, executive vice- president for gas trading at Shell, the world’s biggest LNG producer, told Bloomberg . “We don’t see renewables as being a threat to gas.” It would be difficult to comment on gas and not reference renewables, if only implicitly. Gas emits about half as much carbon dioxide as coal; which means, Mr Crowley and Ms Gilblom observe, that it is often seen as both a cleaner- burning alternative and a complement to wind and solar since it can produce electricity regardless of weather conditions. According to Bloomberg New Energy Finance (BNEF), while the global LNG market is likely to be well supplied until 2022, demand will grow by 4 per cent to 7 per cent annually from 2023 on. “In the fossil fuel area, [gas] is the one clear growth part of the business,” said Brian Youngberg, an analyst at Edward Jones & Co (St Louis, Missouri). › With that growth, there’s a “potential shortage” looming in the mid-2020s that can only be overcome by decisions on new export projects over the next two years, BNEF said in a March report. The major sources of new LNG exports are likely to be from the US, Qatar, Mozambique and Papua New Guinea, BNEF said. Elsewhere in oil and gas . . . › Marking the first exceptions for the oil and gas sector, Chevron and energy major Royal Dutch Shell received waivers to the 25 per cent US steel tariffs imposed by the administration of President Donald Trump. As noted by Zacks Energy Research (13 July), both companies use a speciality steel which is not produced in the US for their operations. The waivers, which will keep the companies’ costs in check, will expire after a year. Of themore than 20,000 steel tariff exclusion requests received by the US Commerce Department, 241 had been processed by mid-July.

What has turned this calculation on its head is, mainly, growing environmental opposition. This was implicitly acknowledged by Kinder Morgan’s chief executive, Steven Kean, who told the Times , “It’s become clear this particular investment may be untenable for a private party to undertake.” In early April, Kinder Morgan Canada suspended most work on the project, despite having spent hundreds of millions of dollars on it and receiving approvals from Canadian regulators. It gave as its primary reasons grass-roots resistance and opposition from the British Columbia provincial government. The stakes were far from negligible. The Trans Mountain expansion would nearly triple the capacity of an existing pipeline that runs from the province of Alberta to the west coast of British Columbia. Mr Kujawinski noted that, today, all of the big Canadian pipeline projects of his era are either delayed or dead. He cited Northern Gateway, a pipeline from Alberta to the west coast, and Energy East, a pipeline from Alberta to Canada’s east coast, both of which have been cancelled. “The future of Keystone XL, perhaps the most notorious of pipeline projects, is still mired in court battles,” he wrote. “And Enbridge’s Line 3 expansion, from Alberta to Wisconsin, is in limbo because of concerns in Minnesota.” › Of course, plenty of Canadians and Americans favour oil and gas production. The Times cited a poll conducted by the Ottawa-based research firm Abacus Data for the Ecofiscal Commission, an independent group seeking to align Canada’s economic and environmental aspirations. It found that 60 per cent of Canadians want to develop their fossil fuel resources while transitioning to a lower-carbon future. Mr Kujawinski does not believe that today’s pipeline difficulties spell the end of fossil fuels in Canada – but they do suggest their growth may be constrained. He finds it hard to imagine that the oil and gas industries will ever receive the broad approval – “social license” – that they enjoyed in the 1950s when the original Trans Mountain pipeline was built. “Traditional considerations like jobs and royalties now compete with the fear of oil spills, pollution and, of course, climate change,” observed the former US diplomat on assignment to Canada. “There is no more telling example of the impact of these environmental concerns than Kinder Morgan selling its prized Trans Mountain pipeline.” Fossil fuels vs renewables: liquid natural gas has a prominent place in both camps Kevin Crowley (US oil reporter for Bloomberg News ) and Kelly Gilblom (energy reporter for Bloomberg News in London) assert persuasively that Big Oil’s fortunes are becoming tied more closely to natural gas than ever before. In early summer they surveyed the territory for those companies hoping to negotiate it successfully.

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SEPTEMBER 2018