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Producers talk up gas demand growth

Affordability and increasing flexibility could underpin double-digit growth, say bullish developers of supply

Demand for gas and LNG is set to continue its double-digit growthwith buyers being attracted by a combination of availability, affordability, flexibility and environmental benefitsproducers of the fuel told the Gastech conference in Houston this week.

"The industry systematically underestimates demand," says Meg Gentle, president and CEO of US LNG export project developer Tellurian. She is "astonished" the market anticipates 4-5pc pa growth when there has been double-digit increases for each of the last three years. "Year-to-date we've increased the market size by 14pc," she says.

"Demand is much more robust than [the industry is] anticipating. In spite of challenges there are opportunities-smaller markets are able to enter on the demand side and provide new sources of electricity to vast parts of the population that do not have any. I am very encouraged about the potential for the market to grow."

The challenge is less about demand than "for us is on the supply side", Gentle adds, noting that producers added 100mn t of capacity over the last three years but are set to only add 60mn t over the next four.

"There is nothing that we can do at this point about the next four years," she says, adding that the industry should concentrate on the following period. "Thank goodness there are a lot of projects, because we need to break roughly 250-300mn t of new supply if we are going to meet the demand out there."

Gas, as well needing to be available and affordable, needs to be offered on flexible terms to meet the needs of buyers, says Steve Hill, executive vice president, Shell. "We are seeing significant changes in markets," says Hill. "We have seen the introduction of competition and we are seeing more uncertainty over the future energy mix."

Fragmentation of the demand side is a challenge for the supply side, which still, says Hill, wants to sell on a long-term basis to buyers with strong creditworthiness.

"We are seeing new markets emerge, markets with bigger credit challenges than in the past," he says. "Natural gas [suppliers] need to provide the solutions. We see that happening all around usthe industry is changing at a very rapid pace.

"To move forward requires solutions to bridge that gap. The portfolio model deployed by Shell… is a way of bringing value to the industry and solve that gap."

Mike Sabel, co-chairman, co-CEO & founder of US LNG export project developer Venture Global LNG, agrees that the market is "dramatically underestimating demand", adding that customers are attracted by value and flexibility.

Gas "will play a major role in future energy systems", Alex Volkov

"Value means different things for different customers," he says. "Some are looking for diversification of geography, indexation, shipping distance, political risk, credit risk, seasonal flexibility and, of course, term."

Portfolio players are in a fantastic position, "given the size of portfolios and their balance sheets and their history in the market to offer great flexibility to customers".

Gas "will play a major role in future energy systems", according to Alex Volkov, vice president and head of global LNG marketing at ExxonMobil. "We believe that the role of natural gas will dramatically increase."

The reasons are simple: it is available, affordable and has "significant environmental credentials", says Volkov. "Substituting coal with natural gas on industrial scale for power generation can significantly reduce CO 2 emissions and improve air quality."

He says gas is complementary to renewables. "Renewables, wind and solar, have a significant problem-intermittency. There is not a solution that exists today that would to solve that problem economically."

Batteries are insufficient for seasonal changes and gas is "an excellent complementary fuel to renewables because it could be brought up very quickly", he says, noting that "natural gas can actually enable further penetration of renewables into the energy mix and provide a multiplier effect".

The environmental credentials of gas can be further enhanced with widespread application of carbon capture and sequestration (CCS), which would "effectively turn natural gas into a green fuel", Volkov says.

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