10 challenges facing the natural gas industry

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According to Elchin Hasan – independent oil and gas researcher and a former BP Azerbaijan employee – the current top 10 challenges in the natural gas sector are:

  • Pricing techniques
  • Gaining access to low-cost, high volume reserves
  • Reserve replacement
  • The political disagreement on the geographical status of the Caspian Sea to pump Turkmen gas to Europe
  • Sanctions and infrastructural insufficiencies in Iran
  • Japan to seek cheaper LNG
  • China to meet its growing gas demand
  • Political challenges to commercialise Eastern Mediterranean gas
  • The decline in UK gas production
  • Europe to focus on renewables and other fossil fuels rather than natural gas

Elchin told Gastech News: “Globally, one of the biggest challenges in the market is the pricing techniques. As known, natural gas does not have a globalized market, rather there are regional markets with substantial differences. While in some markets the prices are linked to the independent hub price, in others it is purely oil-indexed or in some even power prices are also sometimes used as a reference (e.g. Spain). Generally, oil indexation is thought to be the primary impediment for a globalized and more liquid gas market which is not expected to be overcome in the mid-term. The dominance of long term contracts still continues, albeit with a diminishing share.

In terms of upstream investing, the greatest challenge for IOCs is to gain access to big reserves and to discover new commercially feasible ones in places where they have an access. So, the main issue is reserve replacement.

With regard the exporters there are various leading challenges depending on conditions. For instance, while the major challenge for Turkmenistan is to partially move to European markets mainly due to the disagreement in geographical status of Caspian Sea (or lake), the greatest obstacle for Iran is sanctions and infrastructural insufficiencies. Japan is in search of cheaper LNG, whereas China is seeking for huge supply additions as a consequence of demand growth being twice more than the growth in domestic supply. Eastern Mediterranean is still thinking on favourable options to commercialize its large reserves, though the time is moving against them. In Europe, the most problematic situation regarding domestic supply seems to be in the UK where the production is rapidly going down. In general, for OECD Europe it is not “the Golden Age of Gas” as it is being replaced by alternatives being both fossil and renewables."

natural gas industry

 

This article came courtesy of Elchin Hasan, independent oil and gas researcher, oil/gas contracts trader, founder of Brights Scientific Public Association and a former BP Azerbaijan employee.

Anything to add here? Where do you see the greatest natural gas challenges? Let us know your thoughts below.

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