Cover Story
Michael Stoppard:
Running
into Gas
Michael Stoppard is Head of Global Gas Strategy at information
provider and market analyst IHS. In this exclusive interview
with Living Energy, he offers his analysis of the booming natural
gas market.
Text: Ed Targett
Photos: Jocelyn Bain Hogg
E
xplorers used to say that
there were three possible
reactions when drilling a
test well: “Good news, we’ve found
oil. Bad news, we’ve found nothing. Really bad news, we’ve found
gas.” Why was that?
Michael Stoppard: Gas is complicated. Oil is about getting the resource
out of the ground and selling it into
the world’s most liquidly traded fluid
market; with relatively manageable
technological challenges. In the case
of natural gas, it is wellhead to burner
tip; integrated development all along
the chain. You have to put in the
financing, the logistics, the marketing; you have to find a customer; ev-
erything must be arranged in advance, so you need a 20-year plan for
what to do with the gas before you
bring it out of the ground.
Despite that complexity, there has
been a massive turnaround in perceptions of natural gas, and we are
now said to be in the Golden Age
of Gas. What has changed so fundamentally?
M. Stoppard: I think there have been
two fundamental changes, and they
have both affected our old friends,
supply and demand. On the supply
side, we are seeing a very significant
increase in the resource base. I like
to say we’re “running into gas,” not
“running out” of it! We’re finding gas u
Living Energy · No. 9 | December 2013
9
Cover Story
Cover Story
in very significant places and more
widely distributed; that’s the supply
push. And on the demand side, the
world has an appetite for good clean
energy, for affordable energy – and
that’s what natural gas provides.
“Sometime between
2030 and 2040, natural gas may overtake
oil and coal as the
most important global energy source.”
Michael Stoppard, Head of Global Gas
Strategy, IHS CERA
How much gas is out there?
M. Stoppard: What we know is that
reserves are increasing very significantly; five years ago, the oil and gas
industry often used the metric of
60 to 70 years of gas reserves at today’s
consumption levels, but that was
based on a very narrow definition of
gas resources, proven gas reserves.
If you take a wider and more realistic
view of the potential resource and
you include technically recoverable
resources – and resources that, based
on mathematical exercises, you
believe have a very good chance of
being discovered in the future – we’re
now beginning to talk about 250 years
of supply, rather than 60 or 70 years.
That gives you some sense of the
huge potential of the resource base.
In terms of actual proven reserves,
we’ve seen a 30 percent increase in gas
reserves since the year 2000, despite
very significant consumption of gas.
That’s an incredible growth. Is
that mostly conventional gas, or is
that shale?
M. Stoppard: I think there are three
fundamental drivers of this resource
push and supply push. The first and
most important one in terms of potential size, though it is still somewhat
speculative outside of North America,
is shale gas. The volumes are enormous and, just as importantly, they’re
very widely distributed: They bring
in a whole set of countries that had not
previously been considered to be significant hydrocarbon resource holders. Thus, shale gas is by far the biggest
new resource base. The second driver
is the deep-water discoveries of conventional gas. The region that’s really
getting the exploration and production industry excited is East Africa –
Mozambique and Tanzania. But it’s
Michael Stoppard is in charge of global gas strategy at IHS CERA, a company that supplies critical knowledge and independent
analysis on energy markets, geopolitics, industry trends, and strategy.
10 Living Energy · No. 9 | December 2013
much more than that: The eastern
Mediterranean is another really hot area, with big gas discoveries in Israel
and Cyprus. We’re seeing it in Australia, we’re seeing it in Brazil, we’re
seeing it in the Black Sea; a lot of
deep-water conventional gas is being
discovered.
Gas and power are of course intrinsically interlinked. How do you
expect gas-to-power to develop
over the next 20 years?
M. Stoppard: I think it’s an exciting
story. Electricity demand in the world
will grow, and gas will be a fuel and
technology of choice in this electricity
story. The global gas business today
is approximately 3.2 trillion cubic
meters. It’s going to grow by about
50 percent by 2030 – and sometime
between 2030 and 2040, we at IHS think
that natural gas will catch up with
oil and coal and potentially surpass
them to become the most important
global energy source of the future.
This is because of electricity: If you
look at the growth forecasts for
gas demand and by sector, more than
50 percent of the growth demand is
in electricity, so the great high hopes
that the oil industry and the gas industry have for gas are really tied with
the future of electric power.
When it comes to shale, the stars
seem to have aligned beautifully for
the USA. Other countries have
struggled to replicate that thus far.
M. Stoppard: It was never going to
be the case that we would find and
produce significant amounts of shale
in a two-year period. Even in the USA,
there was actually a 15-year gestation
period. Particularly in Europe, the
expectations have swung too far the
other way. If you take the view that
this is a medium- to long-term business, we believe that this can scale
up. The challenges are different in each
play, there are infrastructure issues; if
you don’t have pipelines in place or
indeed markets next to you, that will
take time to develop. You have to
reach agreement on the fiscal regime
and the environmental regulation, so
there’s a huge amount of work to be
put in place.
u
“Huge potential”: Experts say there may be 250 rather than 60 to 70 years’
worth of gas reserves, as previously believed.
Natural Gas: Expanding Globally
150 terawatt-hours – the rise in global gas power generation in 2012
187 trillion cubic meters – total proven reserves of natural gas
30 consecutive years – liquefied natural gas (LNG) trade growth up
until 2012
36% – the rate at which LNG trade has grown over the past 5 years
3,364 billion cubic meters – global natural gas production in 2012
73.5 million tonnes – the spot and short-term LNG market in 2012
US$ 7.8 billion – the amount Beijing is spending to shift from coal to
gas power by 2014
3 quadrillion British thermal units – the rise in US gas production
since 1998
Sources include the IEA, BG Group, EIA, Total, BP.
Living Energy · No. 9 | December 2013
11
Cover Story
We’ve been talking about shale a
little bit. What other forms of
unconventional gas are coming
onstream, and will they play a
significant role in gas-to-power?
M. Stoppard: Well, first of all, we do
see shale gas as the game changer,
and I don’t think the other types of
gas are of the same order of magnitude, or can have the same transfor-
mative effect. Coal bed methane
is not necessarily new, but has been
around for a long time; there are
very exciting developments under way
in Australia, notably in Queensland,
to develop coal bed methane – they
call it coal seam gas – and those are
big projects going ahead, so it’s one to
watch. We shouldn’t forget tight gas,
either; lots of tight gas reservoirs
Michael Stoppard
“Shale gas is by far the biggest
new resource base, and we believe
it will be a game changer.”
Michael Stoppard
Michael Stoppard, Managing Director and Chief Gas Strategist at IHS
CERA, has over 20 years of specialized experience in the international
gas business and is responsible for
the development and coordination of IHS CERA’s global and interregional coverage of gas markets
and LNG.
In 2009–10, Stoppard led the development of the IHS CERA Global
Energy Scenarios. He is the author
of numerous reports, including
analyses of business models, gas
and power convergence in Europe,
and LNG trading. He is also a
member of IHS CERA’s Energy
Research Council.
When he is isn’t working (“Leisure?!
What’s that?”), he enjoys studying
history and learning languages –
currently Arabic.
Before joining IHS CERA, Stoppard
was a research fellow at the Oxford
Institute for Energy Studies. In
addition, he served as a Parliamentary Special Advisor on energy
regulation for the House of Commons Trade and Industry Committee in the UK.
The app version of
Living Energy
features a film of
our interview with
Michael Stoppard.
Siemens.com/energy-channel/
cera-stoppard
Living Energy at
12 Living Energy · No. 9 | December 2013
have potential, particularly in the
Middle East.
Let’s talk a little bit more about LNG...
M. Stoppard: We at IHS expect LNG
demand to double by 2030, from
240 million tonnes per year to about
480 million tonnes. It’s certainly a
growth business, and we think that
that growth is resistant against a
number of scenarios.
There’s a sense among many buyers
that they are simply paying too
much for their LNG, and they are
looking to move away from oil indexation to hub indexation. Do you
see a major shift?
M. Stoppard: Most of the gas that is
traded internationally across the
world is on an oil-indexed basis. The
traditional reason for that is that natural gas was competing with oil: It
was displacing oil in power generation and heating, and the one thing
that the producers needed was confidence that they would have a market
at the end of the pipeline or the end
of the delivery of the LNG ship. The
way to ensure that you would have a
market for your gas was to ensure
that you had a stable price. There’s a
difference between predicting the
chances of getting cheaper LNG, and
anticipating the chance of getting
hub-indexed LNG, which is not necessarily the same thing. This is something people need to think through
very carefully.
Are we going to see more LNG
coming into Europe?
M. Stoppard: That’s a very important
and interesting question. The vast
majority of LNG marketers today are
spending their time running around
Asia. You only have to open a newspaper
and look at the prices to see that the
prices are a lot higher in Asia, so everybody wants to get those premium
prices and sell to the Asian market. But
there’s a huge question mark about
whether that’s sustainable. Our view is
that you can only fit so much gas into
the Asian market, and that the market
will actually need to clear in Europe,
so we will see increasing volumes of
LNG coming to Europe.
Here in the UK, the government is
considering capacity markets to
try and stimulate investment in new
CCGT or even keep mothballed
plants online. Do you think that
will work?
M. Stoppard: Yes, and it’s not just the
UK. Capacity mechanisms are being
discussed in most of the capitals of the
EU now; the issue has raced right up
the priority list and is also much discussed in Brussels. The devil may be
in the detail. There are different ways
of setting up capacity mechanisms,
but the bottom line is that if you are
bringing in an intermittent source of
supply – solar power or wind power –
you need to make sure you have a
backup source, and that will need to
be remunerated. So we expect to see
some movement in that direction,
and that will be to the benefit
of gas-fired power generation.
Do you see power-to-gas becoming
an important part of the energy mix?
M. Stoppard: I think, first of all, we
should explain briefly what powerto-gas is, because it is a totally novel
idea. When we’ve got surplus renewable power in the system – for example,
when the wind is blowing and there
is not much electricity demand –
what do you do with that energy?
The idea is to use electrolysis to turn
the electricity into gas. It’s too early
to say much about power-to-gas;
the costs look very high to begin
with, but what has been really striking is the short time it has taken
from the conception of the idea to
the first pilot demonstration projects.
This has been really impressive.
It shows how much excitement and
potential there is to the idea.
What do you make of its prospects?
M. Stoppard: It is effectively competing with other technologies for power
storage, but I am moderately optimistic
about it. What I find very attractive
about the idea is that it is being presented as an alternative form of storing power, but the big advantage of
power-to-gas is that you are not just
storing power, it is actually a way of
moving power around underground
with minimal environmental foot-
Michael Stoppard (left) met with Living Energy correspondent Ed Targett at the IHS CERA
Headquarters in London to discuss the prospects of the global gas markets.
print, by using the existing gas pipeline infrastructure. You could take
the power at the coast of the Baltic Sea
and the North Sea and export it through
the German pipeline grid down south;
that’s a very attractive advantage.
On that note, gas is often described
as one of the best partners for renewables; why is that?
M. Stoppard: I think there are three
reasons why gas and renewables are
really good partners. First of all, gas
is clean, like renewables, particularly
in terms of pollution and the local
smog: The SOx and NOx and particulates are so low – and that naturally
goes together well with renewables,
which are also obviously a clean solution. In addition to air pollution,
there’s the consideration of low carbon
emissions. If you are pursuing a
low-carbon strategy with renewables,
it makes sense to do that in conjunction with natural gas, which has the
lowest carbon emissions of all fossil
fuels. A third, critical point is speed
of response. That is the ability of gasfired turbines to ramp up very quickly,
ramp down, and follow the weather,
as wind energy comes and goes intermittently and quite quickly. This is yet
another area where gas technology
has an advantage. p
Ed Targett is a freelance journalist who has
reported from Seoul, Brussels, and London
for a range of national and international
publications, including the BBC. He currently
lives in England and focuses on energy and
sustainability issues.
Living Energy · No. 9 | December 2013
13