* Transport fuel demand falling in OECD countries-BP
* Other fuels to steal third of transport sector growth-BP
* Gas could make inroads as price gap yawns
* China targets LNG for transport
* First gas-powered commercial flight left Qatar in January
By Andrew Callus
LONDON, Jan 24 Crude oil's supremacy in motor
fuels is pricing it out of power and industry, leaving it stuck
in low-growth transport and vulnerable to a revolution that
could favour natural gas.
International oil company BP predicts worldwide oil
demand growth of just 0.8 percent a year up to 2030 - slower
than for any other energy type and only half the projected total
energy demand growth rate over the same period.
With cheaper fuels already pushing it out of industrial and
power generation use, any extra oil demand now has to come from
vehicles, shipping and aircraft.
But transport is slow growing. Efficiency gains brought
about by high prices and anti-pollution regulation are the main
reason. BP's Outlook 2030 study shows the fuel economy of new
cars in the United States and China falling well below 5 litres
per 100 kilometre by 2030 from between 7 and 8 now. [()
In OECD countries, transport fuel demand is set to actually
fall as weak economies, a shift to smaller cars, and a move onto
public transport in congested urban areas take a further toll,
BP says. Worldwide, meanwhile, gas, biofuels and other
alternatives are expected to steal almost a third of what growth
there might be.
There is no immediate worry for producers of oil. The world
consumes over 30 billion barrels each year, and even with no
growth, approaching a third of 2011 proved global reserves of
1,653 billion barrels will be gone by 2030. Hence the urge to
head for the Arctic and deeper into the oceans for new supplies.
And presenting BP's report last week, chief economist
Christof Ruhl called the energy industry "a slow-moving beast"
and said the oil glut some now fear is no more likely than the
now discredited "peak oil" shortage predictions of a decade ago.
But he acknowledged surprise at the speed with which energy
use per unit of wealth produced is falling around the world
and said the pace of development in U.S. shale
gas and shale oil had shocked the industry too.
Ian Taylor of the trading giant Vitol was asked in November
about future oil industry shockers, or "game changers":
"I think it's when the Chinese and Americans work out how to
put gas in those trucks and only use gas for transportation," he
said, "and I've got a horrible feeling it may come a little bit
quicker than we're all anticipating."
Gas is already converging on a similar overall market share
to oil in the world's energy mix, at 26-28 percent, and
international oil companies reflect that trend by equalising
oil/gas exploration and production portfolios.
Their heavy spending on liquefied natural gas (LNG)
facilities, which freeze and squeeze gas into ocean-going
vessels, is internationalising the gas market too. BP says LNG
supplies will represent 15.5 percent of gas consumption by 2015.
It is power generation, not transport demand, that is
driving gas growth.
But by happy accident, the reduced bulk that makes LNG
portable also makes it a viable transport fuel, and oil
executives are starting to see a point at which familiarity and
availability could tip the balance away from diesel and
In a presentation last year, Total's chief
executive, Christophe de Margerie, said calorie for calorie,
U.S. natural gas costs one sixth the price of crude. Even with
gasoline and diesel still so dominant, a U.S. truck driver
converting to natural gas derivatives could recover the cost in
months. "Something's got to give if that differential stays
around for long," he said.
IS IT A GAS PLANE?
Royal Dutch/Shell's market-leading investments in
LNG are well documented, as are its widely-promoted LNG-powered
trucks in Canada. In October last year, it also commissioned two
LNG-powererd ships to service its Gulf of Mexico offshore rigs
"You can rest assured they weren't in any way the economic
option," said a senior Shell executive. "This was about sending
a message, at the heart of the industry, at an important time."
Last year, the National Petroleum Council (NPC), a group
backed by Shell and other big oil players, lobbied in favour of
the environmental and energy security benefits of a shift to
cleaner-burning gas and other oil-efficient measures,
Transportation in the United States should "evolve at an
accelerated rate," it said.
Even with the powerful oil industry behind a
gas-for-transport revolution, the average "gas station" is
unlikely to become exactly that overnight, probably leaving the
biggest single slice of the transport industry, the private
vehicle, to gasoline and diesel for some decades yet.
A more likely prize for LNG as a transport fuel is garbage
trucks and other municipal service vehicles, along with mass
transit systems like buses.
Trains, ships, and even aircraft are all potential targets
too. Buses powered by compressed natural gas (CNG) - LNG's less
potent older brother - already ply the streets of Dallas and
other cities. Rotterdam and Singapore have both outlined plans
to become a hub for LNG-powered shipping.
There's plenty to aim at here.
International shipping and aviation fuel plus road freight
will account for about 15 million barrels a day of oil demand by
2035, according to the International Energy Agency (IEA). That
is a quarter of the projected 60 million barrel daily
oil-for-transport pot. [()
LNG-powered ships are already a reality, even though the
fleet is modest for now. A report by ship classifiers Det Norske
Veritas last year predicted that 30 percent of new vessels will
be LNG-powered by 2020. Tankers that carry LNG are an obvious
early target. Another classifier, Lloyd's Register, said the use
of LNG as a fuel will pick up from 2019 and could be as much as
8 percent of global bunker fuel demand before 2025.
Airlines have yet to crack the LNG nut, but the first
commercial gas-powered civil aircraft flight left Doha for
London on Jan. 9 this year, fuelled by another potential
gas-to-transport game-changer - jet fuel made from gas.
Gas-to-liquids (GTL) technology is, for the time being, only
economic on the very biggest scale. Shell's Pearl GTL plant in
Qatar taps the world's biggest stand-alone gas
field and supplied the fuel for that Qatar Airways Airbus
A340-600 flight. Cheap U.S. gas is changing that, and Shell is
looking to copy its Pearl success in the United States.
BP's figures puts gas at 5 percent of the transport fuel
market by 2030, overtaking biofuels, which are already near that
level. Oil's share will have fallen by then to 89 percent from
94 percent presently.
CHINA THE KEY
Nowhere is the pressure on oil-based transport fuels
stronger than in the United States, where oil's biggest
competitor, natural gas, has become very cheap - also as a
result of innovations at the production end of the industry.
It is hard to measure how much fuel substitution is
happening already, but analysts point to U.S. Energy Information
Agency (EIA) data showing diesel mysteriously stuck below its 4
million barrels a day pre-financial crisis levels, even though
the economy has been expanding since 2009.
U.S. price gaps aside, BP's predictions, like those of other
forecasters, put China centre stage as the driver of global
energy demand growth.
It says China will account for approaching half of the 0.8
percent a year growth in oil demand it expects by 2030 - some 7
million barrels a day out of a total extra 16 million barrels.
Here again, LNG could make inroads.
In October last year, China unveiled a policy specifically
designed to spur the transport sector's use of LNG as part of
its push to clean up the heavily polluted air of its cities.
The Natural Development & Reform Commission policy targets
buses, taxis and shipping and sets a target for gas to fill 10
percent of energy demand by the end of the decade.
Five LNG import terminals have already sprung up along
China's east coast, and another dozen are planned. That is gas
for the decades to come.
Beyond that, a recent EIA report made China the site of the
biggest technologically recoverable reserves in the world of the
shale gas that is changing the U.S. energy landscape.
"If the Chinese could do this, it would have enormous
implications for them, for the oil industry, and possibly for
global LNG trade too," EIA chief Adam Sieminski said in an
interview in November 2012.