Sparks About Gas

Addressing the oil&gas ratio

 By Peter Ward
About gas

As oil prices have showed signs of recovery in recent months, major oil companies have faced the very desirable conundrum of where to invest the extra income. For many, the answer could be to address their oil/gas ratio and make bigger inroads into more future proof natural gas production…

In January, the price of a barrel of oil reached $70 for the first time since December 2014, prompting many to predict a return to more profitable times for the oil industry. The rise has been facilitated by members of OPEC limiting supply, offsetting the huge oil reserves in the U.S. pushing prices down. As it turned out, prices didn’t stay that high for long, as other factors like interest rates in the U.S. forced them higher, and the American production continued to cause oversupply. But the roots of recovery were still visible, and it has led to much thought over how oil companies can best invest if 2018 proves to be a happier landscape to operate in.

Gas potential

One area where the oil and gas industry may be tempted to invest sounds quite obvious: gas. But there is a feeling that with the rise of gas as a cleaner fuel, many companies will want to invest in more gas projects as a way to increase their exposure to the market.
Natural gas is seen as the bridge the world needs between dirtier fossil fuels and renewable energies. The U.S.-based Union of Concerned Scientists explained in an article: “Natural gas emits 50 to 60 percent less carbon dioxide (CO2) when combusted in a new, efficient natural gas power plant compared with emissions from a typical new coal plant. Considering only tailpipe emissions, natural gas also emits 15 to 20 percent less heat-trapping gases than gasoline when burned in today’s typical vehicle.”
The Union also explains the combustion of natural gas produces negligible amounts of sulfur, mercury and particulates, and that although burning natural gas does produce nitrogen oxides which are precursors to smog, it does so at lower levels than gasoline and diesel used for vehicles. Analysis by the U.S. Department of Energy indicates that every 10,000 homes in the country powered with natural gas instead of coal avoids annual emissions of 1,900 tons of nitrogen oxides, 3,900 tons of sulfur dioxide, and 5,200 tons of particulates.

U.S. production increases

Natural gas production is increasing dramatically in the U.S. The Energy Information Administration‘s short term outlook at the start of 2018 predicted record levels of natural gas production this year. In 2018, there is expected to be an extra 6.9 billion cubic feet of gas production in the U.S., which is the same as adding the entire output of Turkmenistan, one of the world’s largest gas exporters, in just one year.
Those types of figures may cause some alarm regarding oversupply, but a possible jump in demand in the future may ease those concerns. One of the countries that needs an ever growing supply of natural gas is China. Natural gas production is rising at the fastest pace in four years, according to Reuters, but that will still not be enough to meet demand. The Chinese government has implemented a plan to increase the usage of natural gas as a way of reducing the pollution in the air. China was the world’s sixth-largest gas producer in 2016, but consumption is rising fast, climbing 15 percent in 2017, according to the National Development and Reform Commission.

China’s output

That means China will have to rely on gas imports for the foreseeable future. SIA Energy, a China-focused oil and gas consulting firm, expects China’s 2018 gas output to rise by 8 percent, while gas demand will rise by 12.5 percent. Last year China’s gas imports increased by 28 percent and the country will have to continue importing large volumes of gas to make up the production shortfalls. By 2020, SIA predicts China will be importing 132 billion cubic meters of natural gas to meet demand of 317 billion cubic meters, Reuters reports.
As the world’s largest energy consumer shifts its focus dramatically towards natural gas, it’s fair to say the future of the energy source is promising. Natural gas may come with its own price fluctuations, but for energy companies wanting to lessen the risk of oil price turmoil in the future may consider addressing their gas to oil ratio.

READ MORE: China’s natural gas opportunity di Peter Ward

about the author
Peter Ward
Business and technology reporter based in New York. MA in Business Journalism at Columbia University Journalism School 2013. Five years experience reporting in the U.S., the U.K., and the Middle East.