Shell Executive: Long-Term Gas Contracts to Retain Key Role

PARIS (Dow Jones), Apr. 22, 2010

Royal Dutch Shell PLC (RDSB) senior executive Malcolm Brinded said Thursday he thinks long-term natural gas contracts will continue to play a key role in the industry because of the huge up-front costs of building gas export projects.

"I do think long-term contracts will play a predominant role" in the structure of the natural gas industry in the years ahead, said Brinded, executive director of Shell's upstream international division. He was speaking at an industry conference here.

Producers looking to build multi-billion dollar gas export infrastructure, like liquefaction facilities, will continue to require end-customers signed up to contracted volumes over many years because of the huge up front capital costs of those projects, he said.

Debate is rife in the industry over to what extent such supply deals will migrate to shorter term horizons, such as on a monthly basis, as liquefied natural gas volumes grow as a percentage of total gas demand globally.

Brinded said Shell thinks China will overtake Japan as Asia's biggest gas consumer around 2015, with implications for world crude demand. China is the world's second biggest crude consumer after the U.S. but is in the process of building new regasification facilities and thousands of miles of new gas pipeline to receive more gas from the Middle East and Russia for burning at new power plants.

"This has implications for the oil market," Brinded said, as natural gas displaces oil in power demand. He added that China's move to develop its substantial unconventional natural gas supplies will also impact its long-term demand for crude.

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