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Fernandez de Kirchner: gas sector vital for recovery

President Cristina Fernández de Kirchner calls on the gas industry to focus on "the real economy, production and investment"

By Derek Brower and Tom Nicholls

The natural gas sector is vital for economic recovery and growth, Argentina's President Cristina Fernández de Kirchner said yesterday. Speaking at the opening ceremony for the World Gas Conference (WGC), she called on the industry to focus on "the real economy, production and investment".

That message will be echoed at this week's conference, where delegates are expected to say that gas is the best energy source to help the world in its quest for economic growth, cleaner skies and a more stable climate.

The conference – being attended by 3,200 people, representing 81 countries – comes at a time of flux for the industry. Prices in the world's biggest gas market, the US, remain low. Access to credit remains tricky for some developers. And despite growing LNG global trade, the fundamentals vary from region to region.

In the US, pressure is mounting to make the country's vast new unconventional gas reserves a key plank in the Obama administration's ambition to reduce the country's oil imports. The resource is certainly available: in June, the Colorado School of Mines' Potential Gas Committee, an independent authority on the US' gas reserves, said recoverable volumes had grown by almost 60% in the past four years, to 2,074 trillion cf.

That's a game-changer for the US, where the need to import new supplies has suddenly evaporated.

Europe is going through its own transition, too. The recession has slashed forecasts for demand over the next few years, leaving the continent amply supplied – for now. That has implications for the continent's relations with Russia, among other suppliers.

In Asia, gas' rise looks unstoppable. Australia's steady emergence as global LNG player comes in tandem with China's renewed campaign to increase gas use. Demand there is growing by about 10% a year. By 2020, say analysts, this will make it the world's third-largest market.

Meanwhile, the Middle East is also coming into its own as a consumer. Production has been rising – at 6.3% growth last year, it was more than twice the global average – but the region could soon struggle to meet projections for local demand, which has been soaring.

Saudi Arabia, Kuwait and other oil producers all want to develop new gas reserves, but may struggle to do so because regulated gas prices remain too low to kick-start investment. Upstream growth prospects for Iraq and Iran, meanwhile, remain limited for political reasons.

Then there is the legacy of the credit crunch. Smaller producers are still struggling to raise capital. And even the big ones, such as Russia's Gazprom, have been forced to squeeze spending budgets.

That might not be a disaster while supplies are adequate. But cheap gas now, combined with a slow-down in the upstream, will tighten the balance between supply and demand.

Yet for gas to live up to its billing as the transition fuel in the world's shift to a low-carbon economy, supplies must remain abundant and affordable. Finding a level low enough to encourage demand, but high enough to encourage development of infrastructure will be difficult.

But the sector's future is bright. The fuel is abundant in ways no-one expected just a few years ago, it's cheap and it's cleaner than other hydrocarbons. With the world looking for secure energy supplies, economic growth and ways to fight global warming, the era of natural gas has arrived.

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