For gas market, coal 'is the 800-pound gorilla,' consultant says

Greenwich, Connecticut (Platts)--27Sep2005

Despite conventional wisdom, coal, not oil, will provide the greatest
fuel-on-fuel competition for natural gas in the coming years, a global energy
consultant said Tuesday.
     "We don't believe they are linked," CRA International Vice President
Christopher Ross said of the oil and gas markets. "Oil dominates the
transportation sector; it has no competition there. Gas competes with coal,
nuclear and others. Coal is the 800-pound gorilla."
     As a result, gas prices in an increasingly global market will be dictated
in large part by emissions policies in various regions of the US and among
countries, Ross, a former BP executive, told the John S. Herold 2005
Pacesetters Energy Conference in Greenwich, Connecticut. 
     That could affect the burgeoning liquefied natural gas import market
in the US, Ross said, with LNG gaining market share in places with
the strictest emissions policies, such as Europe, and losing market share in
countries such as China with few emissions restrictions.
    In North America, which Ross said falls in the middle of that spectrum,
gas competes directly with new forms of clean coal--a competition that could
keep gas prices down and making LNG develops nervous.
    "If gas is greater than $5[/Mcf], gas loses to green coal," Ross said. But
he stressed that US LNG imports are still economically viable between
about $3 and $5/Mcf, so "there's enough headroom there."
    In fact, the single greatest risk LNG developers domestically and globally
will be changes in government policies regarding emissions that could redraw
the playing field on gas/coal competition.
    Other risks for LNG project developers, according to Ross, include:
competition from other consuming nations; that governments of producing
countries might demand a larger share of the realized gas price; that
gas-to-liquids products will become more profitable than LNG; and that
overbuilding LNG terminals could "kill the goose that lays the golden egg."
                                  ---Bill Holland, bill_holland@platts.com

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