Bloomberg are reporting that the natural gas industry is on a mission to prove it can keep up with the green energy industry, whose price reductions are starting to become a competitive threat to fossil fuels.
Gas and oil producers have slashed overheads by a third since 2014 and are finding deeper reductions harder to come by, according to energy consultants Wood Mackenzie. That is spurring them to rewrite supply contracts, build mobile liquefied natural gas terminals and take more prosaic steps like fixing leaky pipes.
“This is about getting affordable energy out,” said Jens Okland, executive vice president of marketing, midstream and processing at Equinor ASA, Norway’s biggest energy company. “A lot of these LNG projects are huge. You need to make them cheaper, quite simply.”
Keeping gas affordable is a crucial ingredient of the world’s effort to shift toward less-polluting forms of energy, since it’s gas-fired power generators that can start and stop quickly, helping smooth fluctuations in supply coming from wind and solar farms. Its costs have to fall as cheaper wind turbines and solar panels make utilities scale back their most-expensive traditional power plants.
And gas has plenty of competition even before the rise of renewables. For example, to compete with coal in Asia, gas imports need to land there at about US$4 to US$6 per million British thermal units. That’s about half the cost of reported contracts, according to the International Gas Union trade lobby. In Germany, solar and onshore wind power are already comparable to gas based on the value of electricity the assets generate over their lifetime, Bloomberg New Energy Finance data show.
Expectations about costs are already influencing energy policy as governments decide how to balance supply needs against what voters are willing to pay for. Britain’s climate change adviser said last month the nation may need a fivefold increase in gas-fired plants by 2050 to guarantee power capacity – a forecast that suggests a need for more investment at a time politicians are pressing for utilities to cut their bills to consumers.
Gas executives are confident they will keep a major share of the power generation business. So far, no batteries or other storage technology will give the “grid-stabilising capability” that gas does, De la Rey Venter, Shell’s executive vice president for integrated gas ventures, said in an interview in Washington. “For the foreseeable future you can bank on gas.”
And companies are bringing down some expenses already by focusing on better-value projects, according to Sanford C. Bernstein analysts. An example is Woodside Petroleum Ltd.’s Scarborough gas field development in Australia. It will probably be more than 60% cheaper than Chevron Corp.’s giant Gorgon development, based on a measure of how much spending is needed for each unit of output.
Elsewhere, Exxon Mobil Corp. is seeking to reduce expenses as it expands its LNG projects in places as far-flung as Mozambique and Papua New Guinea.
“It’s really a function of using technology, using available supply sources out there and find a way to bring those to the market at the lowest-cost supply,” Darren Woods, chairman and chief executive officer, said in an interview in May.
Here’s more of the ways the gas industry is cutting costs:
- Smaller LNG Terminals – modular “plug and play” gas liquefaction plants and floating import terminals are smaller, expandable LNG facilities that cater to buyers that need less volume. They’re also cheaper to build, so don’t need decades-long contracts to fund them. A converted LNG tanker deployed as a liquefaction facility in Cameroon cost just US$1.2 billion. By contrast, Chevron’s Gorgon plant in Australia cost more than US$50 billion.
- New Contracts – gas buyers are demanding shorter, flexible LNG contracts as supplier competition grows and market liquidity for the super-chilled fuel improves. That’s making the traditional oil-linked agreements increasingly irrelevant as LNG benchmark prices emerge. Just cutting contract clauses that specify a fixed destination can reduce shipping costs by reducing time and freeing up vessels.
- Cool Running – producing LNG in colder countries can also reduce costs because less energy is needed to liquefy the gas. Novatek PJSC reckons its Yamal plant in Siberia can provide LNG around the world at less than half the prices that China, Japan and South Korea currently pay from other sources because of its temperature advantage over warmer climes such as Qatar, the biggest exporter of the fuel.
- Reducing Leaks – the gas industry still underestimates how much of the fuel leaks away when it’s extracted and transported, according to a survey by the Energy Institute. Producers can reduce that leakage by 75% simply by improving practices in the supply chain, with about half of that cut at no net cost.
Read the article online at: https://www.lngindustry.com/liquefaction/10072018/the-natural-gas-industry-is-on-a-mission/
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