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Majors prepare to step on the gas

19 Feb 2016 18:20 GMT
Majors prepare to step on the gas

Years of heavy investment in gas will start to take effect as the majors look to increase the fuel's share of their production

London, 19 February (Argus) — to rebuff criticism about their lack of investment in renewable energy in recent years, by pushing gas as a "bridging" fuel towards a lower carbon future.

But their case was weakened slightly last year after the share of gas in their combined production dropped to its lowest since 2010 (see graph). The majors' combined liquids output hit a four-year highin 2015, supported by a tranche of deepwater and oil sands projects starting up since late 2014, the effect of lower oil prices on production-sharing contracts (PSCs) and Total's entry into Abu Dhabi's new 1.6mn b/d Adco onshore concession. Combined gas production fell by 4pc compared with 2014, driven by a lower cap on output at Shell and ExxonMobil's Groningen field in the Netherlands.

But 2015 will probably prove to be a blip rather than the start of a trend, as years of heavy investment in key gas projects — including over 60mn t/yr of new LNG production capacity expected on stream in 2016-19 — begin to take effect (see table). The majors know they are adding to an oversupplied LNG market but they are confident that demand will catch up after 2020.

LNG remains a pivotal part of the majors' growth plans, particularly for Shell. [The company's £36bn ($53bn) takeover of UK firm BG]($53bn), completed on 15 February, has added around 13.5mn t/yr to its LNG production capacity, lifting the total to almost 38mn t/yr. The purchase enhances Shell's exposure to US LNG exports through BG's deal to take supplies from the Sabine Pass project on the US Gulf coast. It strengthens Shell's LNG trading and shipping operations and it widens the choice of future LNG projects in which to invest. Shell could overtake ExxonMobil as the biggest gas producer among the majors this year, with gas making up almost 60pc of BG's output in 2015.

Growth strategy

But LNG is not the majors' only route to gas production growth. "We are heading towards 60pc gas by the end of this decade as a number of our big projects come on line in Egypt, Oman and Azerbaijan. And that proportion will continue to rise," BP chief executive Bob Dudley says. Domestic and pipeline gas projects such as Khazzan in Oman, Shakh Deniz phase 2 in Azerbaijan and West Nile Delta in Egypt "offer the longevity of a typical LNG project but cost less to develop", Dudley says.

BP signed an initial agreement with Oman on 14 February to extend the licence area covered by its PSC for block 61, giving it the option to pursue a second phase of development at Khazzan. The 5.2bn m³/yr second phase could come on stream in 2020, subject to a final investment decision next year. The 10.3bn m³/yr first phase is scheduled to start up late next year. BP estimates that the two development phases for Khazzan will cost a combined $16bn, the same as its initial budget for the first phase alone.

New projects that will make a contribution to the majors' gas production this year include Shell's 2.7bn m³/yr Corrib field offshore Ireland, Total's 5.1bn m³/yr Laggan-Tormore complex west of Shetlands in the UK, a second phase of development at BP's 9bn m³/yr In Salah project in Algeria and the 2.7bn m³/yr first phase of Chevron's Chuandongbei sour gas project in southwest China. Total expects to start up the 3.7bn m³/yr Vega Pleyade project offshore Argentina in March-April, followed by the 2.4bn m³/yr Incahuasi field onshore Bolivia by the middle of the year. Chevron is planning to bring on stream the 1.2bn m³/yr Bangka deepwater project in Indonesia's Kutei basin and the 1.1bn m³/yr Alder field in the North Sea this year, while ExxonMobil plans to start production from the 14.4bn m³/yr Barzan project in Qatar, two years behind schedule.

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Majors' LNG start-ups
ProjectCompanyStart
Gorgon, AustraliaChevron, ExxonMobil, Shell15.61Q16
Angola LNGChevron, BP, Total5.22Q16
GLNG train 2, AustraliaTotal3.92Q16
Wheatstone, AustraliaChevron8.92017
Ichthys, AustraliaTotal8.92017-18
Prelude, AustraliaShell3.62017-18
Yamal LNG, RussiaTotal16.52017-19
Natural gas as a share of majors' output%
20082009201020112012201320142015
Shell4547484850525249
Total3839444847495247
BP*4644474849494845
ExxonMobil3939464948474743
Chevron3532303132333433
*excludes share of TNK-BP/Rosneft output