Energy majors accelerate shift to gas in rapidly evolving market

Back in 2015, energy major Shell took a mammoth bet on natural gas via its $70 billion acquisition of gas-heavy BG Group. The signature move - one that Shell was long rumoured to have coveted - cleared the path for it to create the world's biggest trader of liquefied natural gas (LNG).

It made the industry sit up and peer over the company’s motives. There were several, all underpinned by what Shell saw as a burgeoning business opportunity. Fast forward nearly a decade, and everyone in the energy market is not just talking but proactively tapping into this multibillion-dollar opportunity. Why?

Firstly, gas remains plentiful as a natural resource. Secondly, large scale gas production projects tend to have longer lifespans once onstream than oil exploration projects.

Thirdly, and most crucially in the energy transition era, gas is relatively clean in a sense that it produces around half the carbon emissions of coal when deployed for power generation.

Finally, LNG might also incrementally be used as a marine and transportation fuel to replace largely oil based fuels.

Market opportunities galore

According to the International Energy Agency (IEA) global demand for gas will likely remain strong through to 2050. It might also be a more bankable fossil fuel in the world’s march to a low-to-zero carbon emissions horizon compared to oil, and most certainly to coal, in the eyes of many. Specifically on LNG, Shell expects the industry to grow 50% by 2040, according to its latest outlook.

Such assertions seem plausible as the global economy digitises and datacentres proliferate to service artificial intelligence (AI) solutions. For as things stand, even in the most advanced renewable energy markets and largest electricity demand centres, power grid stability is still underpinned by fossil fuels in general and natural gas in particular.

These points were homed in by some of the biggest names in the energy world who convened in Houston, US for Gastech 2024. Most conversations I had at the event point to projections of a growth in gas demand for at least 10 years in all energy mix scenarios, largely down to its wide range of applications.

These include the most obvious ones such as incremental coal-to-gas switching for power generation to the fuel serving as feedstock for blue hydrogen generation. Blending of conventional LNG with bio-LNG, and potentially synthetic LNG in the not-too-distant future, also boost the fuel’s net zero emissions credentials.

An unsubtle shift

When Shell made its headline grabbing move for BG Group, not everyone was convinced apart from its near neighbours in Europe, most notably BP, TotalEnergies and Eni, who also appeared to be rapidly expanding their respective natural gas portfolios.

Back then, the US shale gas industry was also largely dominated by independents, and there seemed to be little by way of a challenge being mounted to threaten Qatar – the world’s largest LNG exporter at the time.

But as the current trading year nears its end, the situation could not be more different. All leading oil companies by market capitalisation now have sizeable natural gas holdings, and some have huge trading operations.

Today supermajors BP, Chevron, ExxonMobil, Shell and TotalEnergies, and the biggest state-owned energy entities ADNOC, QatarEnergy and Saudi Aramco, collectively produce 20% of the world’s natural gas. Seven of these eight, except for QatarEnergy, historically banked on oil exploration.

Another unsubtle shift has been a wave of consolidation in the US shale space, with not just the energy majors buying into it but independents merging to create larger entities (e.g. the proposed merger of Chesapeake and Southwestern in January).

Meanwhile, QatarEnergy, which already has a foothold in US LNG, is upscaling up its domestic production capacity further, having launched the latest phase of its development. The move signals Qatar’s desire to win back its crown from the US as the world’s leading LNG exporter, which it lost last year.

And these days no one in the industry bemoans the upfront and intensive capital required to build LNG export projects, especially those stateside. Take for instance Woodside’s move to acquire Tellurian, which was struggling to develop its Driftwood LNG project, for $1.2 billion.

Woodside, like many of its peers, is eyeing the lucrative potential of US LNG exports, currently tipped to grab a 30% share of the global market by 2030.

The idea that natural gas will serve as a bridge for the global transition from coal-fired power generation to a renewable energy-led future now appears firmly entrenched in the industry’s thinking. With both longstanding natural gas producers and as well as big oil players betting on it, expect more of the same.