Part 3 of 3 The strategic role of gas in the world

Lord John P. Browne, Group Executive Chief BP plc, London

Changing customer needs, advances in technology and reductions in cost have thus all moved the economics of natural gas in the right direction. And flexibility is optimizing supply, serving customers, and enhancing security of supply.

Then there is a fourth factor -- the growing concern with the impact of increased hydrocarbon consumption on the natural environment -- both on the climate and on quality of the air we breathe.

Because of the meeting at Kyoto in 1997, Japan will always be associated with the environmental cause. The environmental risks of climate change and air quality are serious and that as a business we should be contributing to their long-term solution.

It is possible to transcend the harsh trade off which apparently exists between the world's need to consume more energy in order to raise living standards and the world's desire for a clean, secure sustainable natural environment.

Trade off can be transcended by reducing emissions, and perhaps more importantly by shifting to a less carbon intensive economy which can keep overall emissions within the ceiling which the scientists believe is safe without halting economic growth.

Natural gas has a great role to play in that process of achieving that form of energy security. Per unit of energy produced natural gas produces a third less carbon than oil, and 50 per cent less than coal.

The shift to gas is one of the ways in which many different countries around the world will meet the targets set in Kyoto.

And the resources necessary to make that shift possible are available and accessible. Worldwide there are some 5,500 trillion cubic feet (tcf) of proven natural gas reserves, and an estimated further 5,000 tcf still be to found and developed. The investments necessary to produce and develop that gas are now being made.

The projects which we and others are now developing will help to create an integrated global market in which security is enhanced because of the range and flexibility of supply sources which will be available.

In Indonesia we have begun the process which we expect will lead to the Final Investment Decision by the partners at year-end for the Tangguh fields located in Bintuni Bay, the birdhead area of Papua province.

Tangguh -- in common with North West Shelf where we are also a partner -- has already secured a major contract for supply to China and is in negotiations with other customers in the region. The project team has begun the task of creating the supporting infrastructure on the ground.

Tangguh represents more than 14 tcf of certified proven reserves -- and total resources of nearly 24 tcf already identified in a world-class basin that is to date only lightly explored and has significant upside potential.

In Alaska we and other participants are working on plans to bring an estimated 35 tcf of gas to markets in the Lower 48. This from a region that is commonly believed by the industry to hold as much as 100 tcf of gas.

And in Russia we are beginning to explore the possibilities for developing and bringing to market the huge but unproven volumes of gas in the Kovykta field in East Siberia which possibly exceed 30 tcf. This will be pursued as part of the TNK- BP venture once that transaction is completed later this year.

Over time these projects will all become part of an integrated global market, and they will be highly competitive sources of supply for energy users across the globe.

And then there is another source of supply which we hope to develop -- the gas which is currently lost as oil is produced.

Across the world, the industry collectively burns off or vents almost 10 billion cubic feet of gas every day.

That volume alone would meet Japan's daily gas requirement.

Environmentally the gas is a source of potentially damaging emissions. Economically it is a source of lost value.

With governments and other companies, we're beginning to look for ways of limiting the damage and capturing the value which is being lost.

That is why we are participants in the Gas Flaring Initiative -- a public-private partnership involving the World Bank and a number of governments and energy companies. The principal focus of the Initiative is to identify and find ways to overcome barriers that currently inhibit flaring reduction investments and find practicable solutions that will generate investments. Central to this will be finding ways to put a value on the gas that will encourage its productive use.

Part of the answer lies in the development of the market mechanisms under which emissions and carbon credits can be traded either regionally or globally. Part of this answer also lies in the utilization of the Clean Development Mechanism which was endorsed at Kyoto. That mechanism, in combination with the advances in LNG technology, can help to create new ways in which gas can both be used economically in emerging and developed economies and can help to reduce emissions.

Gas will also play a major role in lowering the carbon intensity of the energy consumed by our customers -- as we seek to provide a portfolio of products and services which will help to stabilize emissions.

Japan has led the way in shifting to natural gas in this region and has played a major role in the development of the LNG industry. And we can see that shift beginning to accelerate on a global scale. Japan has demonstrated how natural gas can become a significant part of an economy's energy mix in the absence of indigenous resources and major pipeline infrastructure.

It has required clear strategic policy direction to add gas to the primary energy mix and so reduce a dependence on oil.

It has required the involvement of forward-thinking Japanese companies in every part of the gas chain from the field to the customer's home ...

Over the past three decades, this region has seen gas demand grow by almost 10 percent per annum compared with some 3 percent growth in overall global demand. Some industry observers suggest that gas could grow to comprise 20 percent of the primary energy mix of the region by 2020 from 11 percent today.

Achieving this ambitious projection will require the right conditions to bring forward the huge investments that will be necessary. In the last three years natural gas demand has grown twice as fast as the demand for oil. The demand for coal has fallen.

In a market which is becoming ever more integrated and effective we see the trend in favor of gas continuing. By 2010 gas looks set to account for at least 25 per cent of global energy demand with that figure rising further as the use of oil is concentrated in the transportation sector.

So this is a very exciting moment to be part of the international gas business. Our customers face increasing choices. Technology continues to surprise us.

Flexibility will be the keyword of a new order in natural gas.

And the overwhelming need and desire for a less carbon-intense environment will ensure the gas economy will grow and thrive.

It is a moment of historic change with the ongoing development of a great, growth business which will help to meet the economic and environmental needs of the world.

This article is based on a keynote address delivered by the writer at the 22nd World Gas conference held recently in Tokyo