As a result, gas is increasingly referred to as the “bridge fuel” to the coming low carbon energy economy, a description that some in fact are claiming understates the future prospects for gas; rather it should be considered as a “destination fuel”, based on the fact that CCS (carbon capture and sequestration) would, if proven at scale, work just as well, if not better, in almost eliminating CO2 emissions from gas-fired power generation than it would for coal. Furthermore, it is suggested that gas offers potential as the primary energy source for a future hydrogen energy economy.
However, natural gas has been forecast to be on the brink of a new golden age several times before, but to date has never quite realized the potential attributed to it. A number of reasons can be advanced to explain this, including concerns about the security of international gas supply and the very different characteristics of the gas value chain when compared to oil. Notably, the absence of a liquid market for trading the international gas supply is something which has resulted in a rather rigid, oil-related pricing dynamic that has sometimes acted as a constraint on the ability of gas to compete, particularly in the power generation sector.
In recent years, however, the natural gas sector has also had to contend with a number of new factors that have brought with them considerable pressure for change. Most notably, the shale gas phenomenon in North America has caused increasing volumes of LNG to become available from new capacity. This new capacity had largely been built to substitute for the previously anticipated decline in indigenous production but is now displaced on to the world market. Furthermore, this comes at a time when world demand is under severe pressure from economic recession in the mature markets.
The resultant pressure on global gas prices, even if subsequently alleviated by economic recovery and a greater call on LNG supplies following the Fukushima incident in Japan, has triggered a process of change in Europe. Over time, this change is likely to lead to the replacement of oil indexation by traded-market pricing as the dominant pricing dynamic in the market. The question will then remain as to whether Europe following the USA and UK in having a liquid traded market where gas prices are set by gas-on-gas competition, and therefore reflect the marginal cost of supply, will have knock-on implications for the Asia Pacific gas market, in which China will become an increasingly important player.
These prospective changes in the drivers and dynamics of the global gas business will present an increasing number of challenges, and opportunities to players in the industry.
Why choose Ricardo
With its deep expertise and knowledge of the international gas business, of its markets and its players, coupled with its first class consulting capabilities, RSC is able to offer our clients a full range of strategic support and sound advice to help them understand and anticipate industry change. We offer the full range of consulting services, with particular strengths including:
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Corporate strategy development
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Analysis of market fundamentals
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Portfolio optimization/M&A support
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Project feasibility studies and cost assessment
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Commercial due diligence
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Support for contract negotiation/arbitration
RSC clients in the Natural Gas space include utilities, oil & gas companies, automotive OEMs, manufacturing conglomerates, logistics providers and the investment community. RSC works with our clients’ top teams to develop policies and strategies to create value and maximize the opportunities available in the changing energy world.