Archives for posts with tag: gas demand

In recent years, Australia has been a major growth area for offshore gas production and a key driver of offshore CAPEX. However, the prospects for Australian gas projects that have yet to be sanctioned are looking increasingly uncertain due to weaker LNG prices and cost overruns at existing projects. The outlook for Australian offshore projects may also be complicated by the recent Australian general election.

Gas Powered

Historically, the majority of offshore oil and gas production in Australia has been produced from Southern Australia, particularly from the Gippsland Basin. However, E&P activity in recent years has moved offshore North West Australia, where the emphasis is on large, deepwater gas projects. As a result, Australian offshore gas production increased with a robust CAGR of 7.9% from 2010 to 2015, reaching 5.88bn cfd last year and making Australia the fifth largest offshore natural gas producer globally.

Ample Supplies

This trend is expected to continue with the start-up of Phase One of the Gorgon gas project earlier in the year, increasing Australia’s 2016 estimated offshore gas production to 6.44bn cfd. This is probably just the beginning as Australia is projected to become an even bigger offshore gas producer. The country currently accounts for 10 projects that are undergoing EPC or Installation & Commissioning. Foremost amongst these are gas mega-projects such as Chevron’s Wheatstone, Shell’s Prelude and Inpex’s Ichthys LNG developments, which are scheduled to start-up in 2017. This is anticipated to accelerate Australia’s projected offshore gas production to 9.10bn cfd in 2017, before levelling off at 10.9bn cfd in 2020.

Moreover, onshore projects like Gladstone LNG and Australia Pacific LNG, which are now online, have begun to ramp up production. This is likely to lead to a rapid growth in available supply, arguably pressuring market fundamentals and so weakening spot LNG prices. Consequently, the combination of low spot prices, abundant supply and the development of associated gas reserves off Australia could hit the commercial prospects of many potential gas projects off Australia. Additionally, spot gas purchases could also gain favour against term contracts, possibly pressuring gas project feasibility.

Taking On Water

Currently, 41 projects representing an estimated $158bn in CAPEX have not entered EPC and 97% of the reserves from these projects are gas. Given the current challenging outlook for gas project economics, these projects might not receive an FID as operators could delay sanctioning until conditions improve, possibly abandoning some projects altogether. The situation could be exacerbated by Australia’s general election, which (at the time of writing) looks likely to produce a hung parliament, muddying energy policy waters and possibly putting a domestic gas reservation policy on future projects on the political agenda. That being said, the drive for environmentally friendly fuels could boost gas demand and improve the viability of gas projects in the longer term.

Political issues aside though, oversupply and low gas prices are key. Due to these factors, the near term investment outlook is very uncertain. However, with a project backlog of $158bn, offshore Australia still retains massive long term potential.

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Plagued by constant blackouts and power shortages, Egypt appears to be facing its worst energy crisis in decades. However, following the historic discovery of the giant gas field Zohr offshore Egypt in August this year and revived interest from IOCs, it seems that the tables are set to turn. Indeed, after a period of gas production decline, Egypt’s energy outlook is getting increasingly bright.

Slide Down The Gas Pyramid

Until recently, Egypt’s gas production story had been one of growth: production climbed from 1.68 to 5.76 bn cfd between 2000-2009 and in 2003, it was sufficient to kick-start LNG exports. However, a combination of political unrest (notably the Arab Spring of 2011) and rising population has resulted in natural gas supply shortages over the last 5 years. Domestic gas demand has on average grown by 8% y-o-y, eventually outstripping supply. As a result, Egypt has been forced to re-route LNG destined for exports to domestic consumption. Indeed, at the start of 2014, BG announced it was breaking its contracts because it was unable to export enough gas. This year, Egypt resorted to importing LNG from Qatar – a bitter moment for the previous exporter.

Enter Zohr

They say that when you hit bottom, the only way is up and for Egypt, this seems to be the case. Earlier this year, ENI made what is believed to be the largest ever gas discovery in the Mediterranean, named Zohr. The field is part of the Levantine Basin, home to other prolific gas finds such as the Israeli Leviathan field. ENI puts the find down to different use of sequencing models, concentrating on carbonate rather than classical sand reservoirs. The gas giant (estimated to hold 30 tcf of lean gas) is located in water depths of 1,450m, providing an exciting departure from typical shallow exploration of mature basins in the region. Additionally, BP announced a $12 billion investment in Egypt’s West Nile Delta project: another deepwater discovery with 5 tcf of gas resources. A move to deeper waters creates opportunity for subsea development, the current production solution of choice in all of the country’s active deepwater fields. Out of the 68 active subsea units in Egypt, 40 are operated by ENI and 8 by BP. It is likely that these operators will continue to implement subsea development in their future projects.

Clash Of The Giants

Elsewhere, the discovery of Zohr was not such welcome news. There were plans to import gas via a pipeline from the Tamar field and (once in production) the competing gas giant, Leviathan, in Israel. Plans for the Leviathan field will now have to be redrawn and potentially accelerated if Israel wants a claim of the region’s LNG exports. However, following extensive regulatory and anti-trust objections, its start-up date remains uncertain.

Nevertheless, it is clear that Egypt’s fortunes are turning. The Zohr discovery, alongside other scheduled start-ups, will strengthen Egypt’s energy balance in the long-term. And the story does not end here: it has been reported that there are 7 other deepwater blocks with similar lithology to ENI’s. There is evidently a revived interest in the Levantine basin, as IOCs begin to wonder where the next giant could be hiding.

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Natural gas demand and onshore and offshore production data is now available in Offshore Intelligence Monthly, split out by region and country on pages 3, 6-7 and 20-25. Analysing this data, it is apparent that the offshore hydrocarbons cake just keeps on getting bigger.

Since 1993, world combined offshore oil and gas production has increased by 58%, to 43.7m boepd in 2013; and between 2013 and 2023, it is forecast to increase by a further 35%, to 58.9m barrels oil equivalent per day (boepd). While oil is playing its part in this, gas is proving an even more potent rising agent in the offshore mix, of which it is taking an increasing share.

Measuring the Ingredients

As the Graph of the Month shows, growth rates for offshore oil and gas production have moved more or less in line y-o-y, with gas consistently ahead of oil as hitherto undeveloped historical offshore gas discoveries are brought onstream. While offshore gas production grew with a 3.8% CAGR from 1993 to 2013, oil exhibited a 1.4% CAGR. The spread between gas and oil production is forecast to continue 2013-23, with gas and oil production CAGRs of 4.2% and 2.0% respectively. It is thus expected that offshore gas production will almost achieve parity in volume terms with offshore oil by 2023, accounting for over 49% of offshore hydrocarbons output (versus 32% in 1993).

Energy Hunger

The strength of gas in the offshore production mix in part reflects faster historical and anticipated growth in gas demand. Since 2009, oil demand growth has stagnated in OECD countries whereas gas demand growth has remained firm, averaging 3.0% p.a. 2010-13 with a rate of 2.1% projected for 2014. In non-OECD countries, gas demand growth averaged 4.7% over the 2010-13 period, compared to 3.9% for oil demand. Similarly, 2014 demand growth is forecast at 3.7% for gas and 2.7% for oil. As non-OECD countries continue to industrialise, demand growth for natural gas is likely to remain firm.

Let Them Eat Cake

Given this scenario, it is likely shale gas will meet only a portion of future demand. Conventional gas will still have a role in feeding world energy hunger, and the offshore gas element of this increasingly so. In 2013, 30% of world natural gas production was offshore; in 2023 this is forecast to reach 36%. Accordingly, the offshore gas field investment outlook is positive. Offshore field operators are initiating schemes to utilise associated gas at mature oilfields. Moreover, development of offshore gas fields is increasingly perceived as economic. Gas fields account for 51% of fields under development and 48% of undeveloped offshore discoveries.

More so than oil, offshore gas growth is driven by mega-projects. Current examples include nine South Pars phases off Iran, Leviathan off Israel and Shah Deniz II in the Caspian, due onstream in 2015-17, 2017 and 2019. Major LNG projects planned offshore East Africa and Australia, entailing extensive subsea production systems and deployment of the world’s first floating liquefied natural gas (FLNG) vessels (like Shell’s “Prelude”), are also responsible much of the forecast growth in offshore gas. All in all then, gas looks to be quite a tasty slice of the offshore cake. Bon appétit!

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