Efficiency is the mission
Natural gas drillers are working hard to keep up with their green energy competitors.
The natural gas industry is on a mission to prove it can keep up with the green energy industry, whose price reductions are starting to become a competitive threat to fossil fuels.
Gas and oil producers have slashed overhead by a third since 2014 and are finding deeper reductions harder to come by, according to energy consultants Wood Mackenzie. That’s spurring them to rewrite supply contracts, build mobile liquefied natural gas terminals and take more prosaic steps like fixing leaky pipes.
“This is about getting affordable energy out,” said Jens Okland, executive vice president of marketing, midstream and processing at Equinor, Norway’s biggest energy company. “A lot of these LNG projects are huge. You need to make them cheaper, quite simply.”
Keeping gas affordable is a crucial ingredient of the world’s effort to shift toward less-polluting forms of energy, since it’s gas-fired power generators that can start and stop quickly, helping smooth fluctuations in supply coming from wind and solar farms. Its costs have to fall as cheaper wind turbines and solar panels make utilities scale back their most expensive traditional power plants.
And gas has had plenty of competition even before the rise of renewables. For example, to compete with coal in Asia, gas imports need to land there at about $4 to $6 per million British thermal units. That’s about half the cost of reported contracts, according to the International Gas Union trade lobby. In Germany, solar and onshore wind power are already comparable to gas based on the value of electricity the assets generate over their lifetime, Bloomberg New Energy Finance data show.
Expectations about costs are already influencing energy policy as governments decide how to balance supply needs against what voters are willing to pay for. Britain’s climate change adviser said last month the nation may need a fivefold increase in gas-fired plants by 2050 to guarantee power capacity — a forecast that suggests a need for more investment at a time politicians are pressing for utilities to cut their bills to consumers.
Gas executives are confident they will keep a major share of the power generation business. So far, no batteries or other storage technology will give the “grid-stabilizing capability” that gas does, De la Rey Venter, Shell’s executive vice president for integrated gas ventures, said. “For the foreseeable future you can bank on gas.”
And companies are bringing down some expenses already by focusing on bettervalue projects, according to Sanford C. Bernstein analysts. An example is Woodside Petroleum’s Scarborough gas field development in Australia. It will probably be more than 60 percent cheaper than Chevron Corp.’s giant Gorgon development, based on a measure of how much spending is needed for each unit of output, detailed in the chart below.
Elsewhere, Exxon Mobil Corp. is seeking to reduce expenses as it expands its LNG projects in places as farflung as Mozambique and Papua New Guinea.
“It’s really a function of using technology, using available supply sources out there and find a way to bring those to the market at the lowest-cost supply,” Darren Woods, chairman and chief executive officer, said in an interview in May.
“This is about getting affordable energ y out.” Jens Okland, Equinor executive