Major oil companies' emphasis on gas is growing ever deeper

New sources and production methods have resulted in almost every major international oil company including gas as a vital component of its portfolio.

Wokers in Qatar during the construction of Shell's Pearl GTL, where natural gas is transformed into paraffins and oil-like products. Shell International / Bloomberg News

When Shell announced the successor to its chief executive Peter Voser, it set a few tongues wagging. Ben van Beurden, the current head of refining, had not been among those tipped to lead the company come January.

Mr Van Beurden's role in the downstream business sits awkwardly with the company's focus on upstream projects, and the struggle to replace the crude reserves on its books. But a closer look sheds insight not only into Shell's strategy, but the industry trend that defines it.

In a career spent at the oil major, the incoming chief executive gained a decade of experience at Shell's liquefied natural gas (LNG) business.

It is an experience he will likely draw on heavily once he is enthroned at the head of the Anglo-Dutch company.

Shell has for some time placed a strong emphasis on natural gas, and its output is roughly divided equally between gas and crude. It has built the largest gas-to-liquids plant in the world, the Pearl GTL project in Qatar, where natural gas is transformed into paraffins and oil-like products. It is heavily invested in LNG, and plans to build Iraq's first export terminal to complement crude exports. In April, it was selected to develop the Bab sour-gas field in Abu Dhabi, a project that requires a deep expertise in gas production due to the complexities posed by the large amounts of sulphur in the reservoir.

Shell is not alone. Almost every major international oil company now includes gas as a major component of its portfolio. And the trend is fed by a seemingly unending sequence of new gas sources, as well as new production methods that greatly enlarge the reserve pool.

Iraq's oil abundance is accompanied by copious amounts of associated gas, it is Shell's job to capture it and feed it into the countries' power plants, while hoping to siphon off significant amounts for more lucrative LNG exports. The international oil companies (IOCs) in the Iraqi region of Kurdistan are keen not just on the autonomous region's crude, but are planning gas exports via Turkey.

In East Africa, IOCs are positioning themselves to exploit huge offshore reserves that have recently been discovered. Australia is poised to overtake Qatar as the world's biggest exporter of LNG as shale gas deposits are becoming accessible through fracking. Also known as hydraulic fracturing, fracking is a production technique that extracts oil and gas from deep lying rock formations, such as shale, using horizontal drilling and the injection of water, sand and chemicals to fracture the rock.

Fracking has already revolutionised the natural gas market in the United States by drastically increasing supply and bringing prices crashing down. The new era of cheap energy has done much to revive American industry and speed up the recovery of the US economy. The country could also become a significant exporter of gas, and the government has already given the green light to convert a LNG import terminal into an export facility.

Gas finds its main use in power generation, where it represents a cleaner alternative to coal, a cheaper alternative to renewables, and a safer alternative to nuclear energy. But it is also increasingly used in transportation, while it is a major feedstock for the petrochemical industry. With the need for energy growing, gas will over time also increase its share in the energy mix, predicts the International Energy Agency.

In the Arabian Gulf, natural gas plays a crucial role in powering economic development. The bulk of the region's power plants are gas-fired, as oil producers have come to rely on the hydrocarbon that is produced alongside oil. Associated gas used to be adequate to meet needs, but urban development, wasteful use and industrial development have left existing supply insufficient, leaving governments scrambling for new sources.

In Abu Dhabi, this means the development of sour-gas fields, and Bab is the second such project after the Shah field, where production is set to begin next year. The UAE also receives gas from Qatar, while Abu Dhabi is following Dubai's lead by creating an LNG import terminal.

Abu Dhabi National Oil Company has sanctioned US$40 billion of expenditure to boost the emirate's oil and gas production in afive-year investment cycle, $25bn of which will be used to increase the gas supply

Bab captures the trend towards gas perfectly: one of the world's biggest - and oldest - oil companies working in one of the world's largest oil producers to complete a technically challenging project to produce one of the world's most in-demand commodities.