107- www. energy- future. com 6.5- Understanding oil and gas ment. Both steps take time - usually more than consumers would like. And the banks and governments that will stump up cash to pay for them want to see guaranteed mar-kets and supplies in the form of long- term contracts. This takes years too. Iran, with the world's second- largest natu-ral gas reserves after Russia ( see p128), has been trying to build a pipeline to India and Pakistan for years - but no- one is throwing cash yet at a project that would require two of the world's long- standing political antago-nists to set aside their disagreements. There are some fundamental reasons why natural gas has been a flashpoint re-cently. We all know about the surge - and then crash - in oil prices in recent years. But even when oil prices were flying through the roof in mid- 2008, hitting almost $ 150 a barrel, gasoline and other oil products were still flowing freely to consumers. Even if it cost more, you could still fill up your car. That's because the oil market is liquid. That's not a pun, it's a term economists use to describe a market place where a com-modity is traded by lots of people. Sure, prices go up and down, but there was still oil to trade. The oil market is global, too. Consumer countries buy oil from across the world. Producers take it out of the ground and send it down a pipeline to a port, and once the crude is loaded onto a boat it can travel to whichever buyer pays the most. Oil's troublesome little sister Natural gas, by comparison, is oil's trou-blesome little sister. In fact, not long ago oil explorers who found gas in a well consid-ered their discovery a let- down. In the bad old days, much associated gas - gas found alongside oil in a reservoir - was simply burned away, with adverse environmental consequences. Making use of the gas would have required a whole different kind of ex-pensive infrastructure. And then the compa-nies would also need to line up customers. Not so now. Gas burns more cleanly than oil, making it a vital source of energy in a The SCP gas pipeline crosses three countries and the Caucasus mountains © BP plc
108- www. world- petroleum. org 6.5- Understanding oil and gas Like oil, natural gas is often found in some of the world's remotest regions. Russia, for example, wants to develop a gasfield called Shtokman; it's in the Barents Sea, well north of Russia's landmass and close to the Arctic. For most of the year, it is under ice. One solution for getting those kinds of reserves to market is to liquefy it close to the gas field and export the liquefied natu-ral gas ( LNG) by tanker. That involves cool-ing the gas to - 162° C. LNG is the fastest-growing segment of the natural gas market. But it's costly. Some of the LNG projects being developed on the northwest coast of Australia, a burgeoning exporter, cost up-wards of $ 15 billion. LNG accounted for about 7% of total gas demand last year, according to Wood Mackenzie, an energy consultancy. But this will grow rapidly, because LNG has advan-tages that pipelines lack. For example, many consumer countries see LNG as way to reduce their reliance on piped gas. Gas through pipelines ex-poses consumers to the kind of problems that eastern Europeans faced last winter - when the supplier can't ship his product, the pipelines can stand empty. If an LNG sup-plier fails to deliver, another one can be found to fill the gap. More liquid The LNG market is beginning to oper-ate as a liquid market too. In theory, that should result in the most favourable price for consumers. Lots of the LNG produced in countries such as Qatar, the world's LNG power-house, is contracted on a long- term basis. But already, says Wood Mackenzie, 15- 20% of LNG is traded on the spot market, where buyers can purchase short- term car-goes as and when they need them. Pipelines are still vital. In the UK, for in-stance, the North Sea has long been the main source of natural gas, all of it supplied through pipelines. And, when it has needed extra gas, there are pipelines that cross the English Channel, tapping continental supplies. The North Sea's production is declining, however, and UK gas consumption contin-ues to grow. So LNG terminals are sprouting up along the country's shoreline. That's cru-cial: any consumer nation that wants to take advantage of LNG's flexibility needs a so-phisticated infrastructure to receive the tank-ers that carry it - and then the facilities to regasify the liquid gas and deposit it in the local pipeline grid. It also needs deep- wa-ter ports able to handle the LNG tankers - enormous cryogenic ships that can carry up to 260,000 cubic metres of gas, and stretch almost 350 metres in length. A commodity for the world Piped gas is a commodity for regions, but LNG is one for the world. That is trans-forming the gas business - and the en-ergy outlook for many countries that de-pend on imports. China, the world's fast-est- growing energy consumer, now sees LNG as critical to its ability to keep supply-ing the economic powerhouses along its coastline - cities such as Shanghai and Guangzhou - with energy. There are other uses for gas reserves that once seemed stranded in inaccessible lo-cations. Gas- to- liquids ( GTL) technology in-volves converting natural gas into ultra- clean liquid products, such as synthetic diesel and naphtha, which are traditionally produced by refining crude oil. Qatar, home of the world's largest gasfield, is leading the way with this technology, as it has with LNG. So far, GTL production is small and, to some eyes, the whole process looks costly and fiddly, given that established infrastructure allows oil to do the same thing. But, then again, there was a time when people thought natural gas would never be much use for anything. Your boiling pasta pan suggests otherwise. ?? To liquefy or not to liquefy?