Gas-liquids get visibility in global energy markets

By SPENCER SWARTZTHE WALL STREET JOURNAL EUROPEAugust 21, 2008

LONDON -- When energy forecasters try to divine what will satisfy the world's rising appetite for fuel far into the future, they see not only crude oil but also a lesser-known fossil fuel: gas-liquids derived from raw natural gas.
The world's growing reliance on natural-gas liquids, known in the industry as NGLs, accounting for less than 10% of world daily oil demand a decade ago to about 12% today, has gone unnoted by many industry players during this year's record spike in oil prices.
But their increasing supply illustrates both the promise of NGLs and the shaky state of the oil market. NGL supplies have grown 36% this decade and may meet as much as 15% of world oil demand by 2013, according to the International Energy Agency in Paris.
Even as crude prices soared to record highs the past few years, conventional oil production has basically held steady because fields are becoming less productive and political and technical issues have hurt output.
NGLs have played a significant role filling the gap. Some analysts argue this may signal the decline of the age of conventional oil, the stuff that's relatively easy to extract, because oil fields tend to yield more liquid gases as they age.
But others say natural gas availability has its own problems in parts of the world, raising questions about whether future NGL supply growth could also be stalled.
With the world's biggest proven natural-gas reserves, the Persian Gulf is a major NGL producing region, but top producers like Qatar and Saudi Arabia are facing geological problems and becoming big energy consumers themselves.
"Many of these countries are being forced to think hard about how much gas and oil they can export as their own demand grows," says Paul Tossetti, director of oil market analysis at PFC Energy, adding he's still optimistic about gas-liquids' growth prospects.
Egypt, a growing gas exporter, also recently put a freeze on new export deals for at least two years as debate grows inside the North African nation about how much gas should be exported or kept for domestic use.
NGLs beef up the oil supply base because, similar to refined crude products, they can be used for things like transport fuels or as feedstock in industrial processes, allowing more oil to be refined for transport fuels.
With the technology and know-how of companies like Exxon Mobil Corp. and Royal Dutch Shell PLC, Qatar and other traditional oil producers are using their gas reserves to industrialize and gain another revenue source.
But Qatar has been forced to reassess future projects because of fears its giant North Field, the world's single largest gas structure, may have been overworked the past decade.
Qatar has been doing extensive studies on the field since putting a moratorium in place in 2005 on all new gas projects. Qatar isn't expected to make a decision on whether to lift the ban until 2010 -- though that decision could be extended by a few years.
Qatar Deputy Prime Minister and Oil Minister Abdullah bin Hamad Al-Attiyah said in a recent interview that he expects the country to remain a top gas exporter despite the current ban on new projects because of all the projects already in operation or close to starting.
Qatar's NGL production is about 600,000 barrels a day, up fivefold from a decade ago, according to consultants at PFC Energy.
Without those NGLs and others from nations like Saudi Arabia and the U.S. -- the world's biggest NGL producer -- oil prices would be even higher, says David Fyfe, a supply analyst at the Paris-based IEA, the energy watchdog.
"It's quite clear that NGLs are having a very positive impact on overall oil supply," Mr. Fyfe said. U.S. crude prices traded at $112.92 a barrel midday Wednesday, up around 60% from a year ago.
Many analysts are optimistic about NGL supplies, with expected growth rates of at least 4% a year over the next five years.
The world has about 60 years worth of natural gas, about a third more than oil based on current production levels and proven reserves, according to the BP 2008 Statistical Review, and companies like Exxon are working closely with state energy firms to tap those reserves.
Write to Spencer Swartz at spencer.swartz@dowjones.com