November 2017 Vol. 72 No. 11
Features
Global Energy, Pipeline Outlook
By Jeff Awalt Executive Editor
Despite ongoing challenges, there is growing confidence among analysts that 2017 marks a turning point in several key areas that drive long-term demand for natural gas development and pipeline construction.
A Barclays survey projected global exploration and production spending to increase 7 percent this year, driven by a 27 percent increase in North America spending, compared with a 38 percent decline in 2016. International spending was predicted to increase 2 percent versus an 18-percent decline last year.
Wood Mackenzie projected that exploration will turn profitable after five years of only single-digit returns. The firm reported 15 upstream projects reached final investment decision (FID) in the first six months of 2017 and could more than double to 25 by year end, compared with only 12 in all of 2016.
“There are positive signs that the upstream industry is continuing on the road to recovery and that the more-competitive conventional projects are moving down the cost curve sufficiently to attract new investment,” said Angus Rodger, research director, Asia-Pacific upstream at Wood Mackenzie.
Douglas-Westwood’s “World Onshore Pipelines Market Forecast” offered more reason for optimism over the next five years, projecting global installations will exceed 171,500 miles. Douglas-Westwood said total onshore pipeline capital expenditures are expected to increase about 5 percent through 2021 to $203 billion, compared with $194 billion in the preceding five years, with North America and Asia accounting for 53 percent of global spending over the forecast period.
Market trends
Preliminary estimates by Cedigaz show global natural gas demand in 2016 continued to grow at an annual rate of 1.6 percent to 3,528 Bcm, while low prices and harsh upstream conditions caused global natural gas production to stagnate, marking a break in the average growth rate of 1.8 percent during the previous five years. In BP’s June 2017 “Statistical Review of World Energy,” Group Chief Executive Bob Dudley wrote, “This is the weakest growth in gas output for 34 years, other than in the immediate aftermath of the financial crisis.”
Cedigaz Chief Economist Armelle Lecarpentier projects global demand for natural gas will grow approximately 1.6 percent a year through 2035 – down from a 2.2 percent annual growth rate in 1990-2015-due to improved energy efficiency and expanding renewables. Emerging economies represent over 85 percent of
the projected growth in demand.
China alone accounts for 28 percent of the projected demand growth, Lecarpentier said, followed by the Middle East at 24 percent.
“In percentage terms, renewables is the fastest growing category, but in absolute terms, natural gas will still have the largest growth, and we see the growth in absolute consumption of natural gas will outstrip that of all other energy resources,” Lecarpentier said. He added that the main drivers to growth include the expected strong expansion of LNG supply and the vast availability of resources, with supplies boosted by unconventional gas in North America and Asia, as well as conventional gas in Russia and the Middle East.
“We anticipate significant expansion of intra-regional and long-distance pipeline trade and a crucial need to build new infrastructure in emerging markets of the world, including Asia,
Africa, the Middle East and South and Central America,” Lecarpentier said. “LNG will have a growing share in inter-regional trade, driven by emerging markets – especially China and India, but also new markets in Asia. Pipeline gas is also important to India and other markets that will seek to diversify their supply.”
Deloitte forecasts the average price of natural gas at the benchmark Henry Hub will increase from $3.10 in 2017 to $4 in 2027. For the same 10-year period, Deloitte projects increases from $5.20 to $6.10 for UK-NBP, and from $2.70 to $3.80 for India domestic gas. It projects the average price per barrel of WTI Spot will increase from $48 in 2017 to $70 in 2022, and Brent Spot to grow from $49 in 2017 to $71 in 2022.
Africa
Oil remains the dominant fuel in Africa, but there is a growing opportunity for natural gas to displace oil. “We anticipate a massive switch from oil to natural gas, especially in the power generation sector,” Lecarpentier said.
Morocco and Nigeria recently agreed to explore a potential pipeline between the two countries, tagged “The Wonder of Africa,” to fuel electrification projects in West Africa and serve as basis for the creation of a competitive electricity regional market. A memorandum of understanding was signed by the Nigerian National Petroleum Corporation and the Office National de Hydrocarburers et des Mines for a potential feasibility and front-end engineering and design (FEED) study.
Uganda and Tanzania signed an agreement on a proposed $3.55-billion, electrically heated crude export pipeline that would pump Ugandan oil to international markets. An official at Uganda’s Ministry of Energy told Reuters the agreement covered timelines, project details and terms on tax incentives. The 898-mile pipeline would start in western Uganda and terminate at Tanzania’s Indian Ocean seaport of Tanga.
In Nigeria, Shell is moving ahead with the Loopline Project, which will create an alternative route for the Trans Niger Pipeline (TNP) to avoid sabotage. The three-part project will install 36 miles of 30-inch pipeline over land and swamp terrain to bypass an area where theft and illegal refining have been common, and install monitoring systems to detect any intrusion or leak. Other Shell projects in the region will add about 50 miles of pipelines and associated construction.
South Africa agreed with Mozambique in early June to conduct a feasibility study for a proposed 1,616-mile natural gas pipeline between the two countries. Independent South African oil and gas company SACOIL Holdings would build the estimated $6-billion pipeline to harness the commercial potential of gas reserves discovered in the Rovuma sedimentary basin in the Mozambican province of Cabo Delgado.
A proposed Trans-Saharan Gas Pipeline appears to be gaining renewed interest following additional discoveries offshore West Africa. The estimated $12-billion pipeline would span 2,735 miles from Nigeria to Algeria, where it would connect to existing pipelines for delivery to Europe via Spain. It would have an estimated annual capacity of 30 billion cubic liters of natural gas, with first flows targeted for 2020.
Asia Pacific/Australia
The Asia Pacific region leads the way in projected energy demand growth and its emerging markets play a central role in the projected 3.7 percent annual growth of international LNG trade to 669 Bcm in 2035. Natural gas faces an uphill battle for market share in coal-dominant Southeast Asia and OECD countries, but BP’s statistical report shows natural gas consumption rose in every Asia Pacific country during 2016 with a 2.7 percent growth rate. Oil consumption increased 3.3 percent in the region.
“There is a substantial need to invest in natural gas infrastructure in Asia at the local level and to serve global trade and service exchanges between markets,” Lecarpentier said. Reflecting this need, a July report by Research and Markets projects that the Asia Pacific oil and gas pipeline market will reach $19.16 billion by 2022
India’s GAIL initiated a major step toward construction of the Jagadishpur-Haldia-Bokaro-Dhamra Natural Gas Pipeline (JHBDPL), by approving orders for the 133-mile section from Phulpur to Dobhi (under phase-IB/Two section) to be constructed simultaneously by JSIW Infrastructure Pvt. Ltd. and IL&FS Engineering & Construction. Work is targeted for completion by late 2018. The 1,578-mile pipeline will connect homes in major cities and towns along the route with piped natural gas.
In Australia, Jemena awarded a contract to McConnell Dowell to construct 299 miles of the 386-mile Northern Gas Pipeline, and selected Spiecapag Australia to construct the Queensland portion, which includes 88 miles of the pipeline from east of the Queensland border to the pipeline’s end-point in Mt Isa. The Northern Gas Pipeline is an AU$800 million system that will connect gas fields in the Northern Territory with customers in its Eastern Gas Market. Project Director Jonathan Spink said Jemena secured its pipeline license and construction approval from the Northern Territory Government, allowing work to proceed on schedule. First gas is expected by late 2018.
Western Europe, EU Countries
Energy consumption has plateaued in Europe, but natural gas demand grew 6.1 percent in 2016 – leading all regions – as gas takes market share from coal. Cedigaz projects overall energy consumption will fall about 1 percent as gas demand grows 2.2 percent in 2014-2035.
Declining production and increasing demand have made Europe a natural target for natural gas and LNG exporters, prompting a surge of natural gas pipeline and LNG infrastructure construction. “U.S. LNG will be competing on price in Europe with cheaper Russian pipeline gas – and both of them will be vying to replace coal in the power market,” Wood Mackenzie reported, estimating LNG imports to northwest Europe will more than double this year to 31 million tons. Illustrating these trends, the first U.S. LNG shipment to Central Europe arrived in Poland in June, just as Hungary signed an agreement to link with Gazprom’s Turkish Stream (TurkStream) pipeline by the end of 2019.
Concerns over growing reliance on Russian gas have led some countries to diversify supply sources. Finland authorized state-owned Baltic Connector Oy to start construction next year on the Balticconnector natural gas pipeline, and announced it will open wholesale and retail gas markets in time for the project’s scheduled completion in 2020.
Middle East
Power generation is the biggest source of global gas demand growth, and the Middle East is the projected growth leader in gas-fired power generation. Cedigaz forecasts gas demand growth in the Middle East will run a close second to China during the 2014-2035 period, accounting for 24 percent of incremental growth volume. Overall Mideast energy consumption should grow nearly 50 percent through 2035, according to BP, with natural gas accounting for over half that growth and rising to 52 percent of total energy demand, compared with 50 percent in 2016.
Middle East gas consumption grew an estimated 3.5 percent in 2016, aided by improving infrastructure and availability of gas, while total energy consumption in the region declined about 2 percent. Israel remained the growth leader with a 14.5 percent increase in natural gas demand, reflecting the increasing availability from discoveries offshore Haifa. Israel’s gas discoveries may also impact gas flows in and from the region, as the 21.9 Tcf Leviathan field becomes fully operational and Israel looks to expand exports beyond neighboring countries to Western Europe and Turkey. Jordan has already signed a $10-billion deal to import Israeli gas, and Israel, Cyprus, Greece and Italy recently agreed on a $6.4-billion pipeline to deliver Israeli gas to Europe.
Iran started natural gas exports to Iraq in June for the first time in four years, and Iran’s oil minister said the two countries will study the feasibility of a pipeline to export crude oil from Iraq’s northern fields through Iran. Total and the National Iranian Oil Company (NIOC) agreed in July to develop Phase 11 of the giant South Pars gas field, with production capacity of 1.8 Bcf/d targeted for domestic use. The first stage is projected to cost about $2 billion and include 30 wells and two wellhead platforms connected to existing onshore treatment facilities by two subsea pipelines.
A long-awaited 72-mile pipeline connecting Saudi Arabia and Bahrain is scheduled for completion early next year. Originally targeted for completion in 2016, the 350,000-bpd A-B pipeline is expected to begin flowing light crude oil from the Abu Safa field after a six-month trial. It replaces an outdated link and expands processing capacity at Bahrain Petroleum’s Sitra refinery.
Research and Markets reported that construction has begun on a 300-mile pipeline project jointly developed by Abu Dhabi National Oil Co. (ADNOC) and Masdar. The Dublin-based firm also noted that a 143-mile pipeline under construction between Central Oman and Maritime Hub in Duqm is expected to start operations this year.
Russia, CIS countries
Russia is projected to remain the world’s largest energy exporter through 2035 as it continues to focus on oil production and increased natural gas exports through major pipeline expansions to Europe and Asia.
The chairman of the Turkmenistan-Afghanistan-Pakistan-India Natural Gas Pipeline (TAPI) project told TOLOnews in July that construction work is expected to begin in Afghanistan within a year. The 1,100-mile, 56-inch TAPI pipeline would export up to 3.2 Bcf/d of Caspian Sea natural gas from Gylkynish and adjacent fields in Turkmenistan to Afghanistan, Pakistan and India. Initial construction began in Turkmenistan in 2015 and completion of the estimated $10 billion project is targeted for 2019.
South/Central America, Caribbean
Demand and production trends in South and Central America have lagged other regions as it struggles to emerge from a prolonged downturn. However, analysts expect substantial long-term growth in natural gas demand and infrastructure. Cedigaz projects gas demand will grow by 2.4 percent a year through 2035, but Brazil and Argentina are likely to grow significantly faster. Brazilian consumption is expected to grow 41 percent during the period, and BP projects it will become a net energy exporter as production from oil and gas, hydroelectric, nuclear and renewables exceeds its domestic needs.
“Massive investments are needed in the gas sector at the midstream and downstream level to integrate markets and connect markets between countries,” said Lecarpentier. “We will see an expansion of gas power plants in Brazil to increase security of supply because hydro potential can be constrained, and the power supply from renewables is unpredictable in the short term.”
Natural gas supply is projected to get a boost from unconventional drilling in Argentina. Wood Mackenzie estimates that production could peak between 0.7 and 1.25 mboe/d by 2031 at Vaca Muerta, where new pilot and development agreements have been announced with increasing frequency this year. In July, BP and Total announced with Germany’s Wintershall the signing of an investment agreement with Argentina’s state-run oil company, YPF, to jointly invest $1.15 billion in the Vaca Muerta shale. BP’s Pan American Energy, Total Austral, Wintershall Energia and YPF plan to drill over 60 wells in the Aguada Pichana area. ExxonMobil also plans to speed up its investment plans for shale drilling, and Chevron has been developing acreage with YPF.
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