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Future Gas

For some time now, we have seen natural gas assume an ever larger role among the major oil companies at the expense of oil. Many industry observers have come to expect the importance of gas to steadily increase as it serves as a bridging fuel as the world evolves from the internal combustion engine to renewable energy.  According to “World Oil”, a new report, “Bloomberg New Energy Finance” (BNEF) questions how long, and to what extent, even natural gas has to play in the world’s energy future.  While it is always important to question the conventional wisdom, and recognize changing trends, I question some of the report’s assumptions and conclusions.

The implications of a diminished role for natural gas are alarming for both international oil companies such as Total, BP, Shell, and ExxonMobil, as well as major gas exporting nations such as Russia, Qatar and Australia.

Since natural gas generates about half the carbon dioxide emissions of coal, it was seen as the ideal bridge to the brave new world of renewables. Shell, for example, bet big on gas with its $50 billion purchase of British Gas.  However, even Shell seems to be hedging its bets with a budget of $1 billion targeted on new technologies such as renewables.

Some skeptics have revised gas demand forecasts downward due to the sharp decline in the cost of renewable power facilities and lower coal prices. However, in my opinion, these trends offset each other.  On the one hand, if you are concerned about emissions, you are not likely to increase coal consumption.  On the other, if cheap coal is your reason to avoid gas, you are not likely to pursue renewables on the basis of economics.  While both can compete with gas and depress demand, their effect is more offsetting than cumulative.

The BNEF also cites Germany as an example of renewables competing successfully with fossil fuels. However, I would attribute this to the artificially high cost of fossil fuels (regulation, taxes, etc.) in that country as compared with tax subsidized renewables projects.

Most industry observers see robust growth for natural gas demand for the next several decades. The International Energy Agency sees the market expanding by 50% by 2040.  ExxonMobil estimates growth during this period at 44%.  BP sees demand increasing by 38% by 2038.

Another question to consider is how much electricity can wind and solar actually produce. Many estimates are that only a fraction of global demand could ever be met by these sources.

Johannes Teysen, CEO of EON SE, a private energy company focused on renewables, summed it up well, “Gas will play a significant role in the decades to come. Coal will decline much faster, but gas probably needs also to accept that its own role will not grow to eternity.”

To read the article in its entirety, please go to http://www.worldoil.com/news/2017/7/18/oil-majors-see-salvation-in-gas-but-what-if-its-a-wrong-bet .

Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide.  Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.