Francisco A. Laguna & Wojciech Kornacki
Today, we continue the theme of energy and energy-independence with a discussion about natural gas. There is no question that most states around the world have become more environmentally aware. International opinion is shifting towards supporting methods of obtaining energy which create less pollution domestically. No one wants to enjoy energy in a polluted environment. With the latest advances in technology lowering production costs, this, in part, means moving away from coal and crude oil toward other resources, such as natural gas. According to the U.N. International Energy Agency, the use of natural gas has increased from 16% in 1973 to almost 21% in 2009. At around same time, the world consumption of natural gas has increased by about 51% and is expected to grow at about 2% annually. This creates tremendous opportunities for businesses seeking to meet the growing demand for natural gas.
The U.S. Environmental Protection Agency reports that natural gas is a “fossil fuel formed when layers of buried plants and animals are exposed to intense heat and pressure over thousands of years. Natural gas is combusted to generate electricity, enabling this stored energy to be transformed into usable power. Approximately 40% of all natural gas used is consumed by the private sector, and as countries continue to develop their industries, they need more natural gas to power them.
The demand for natural gas and natural gas delivery security will continue to grow. This means more opportunities for businesses seeking to enter the natural gas sector and related industries, such as energy technology, environmental safety, logistical support, energy security and natural gas exploration.
The biggest net exporter of natural gas today is the Russian Federation, followed by Norway, Qatar and Canada. In the winter of 2009, due to a dispute between Russia and the Ukraine, the European Union (EU) received 5 billion cubic meters of natural gas less than normal which sent a shockwave across the EU. In 2012, the Russian Federation reduced its deliveries to the EU again due to what it called an unusually cold winter. The current stand-off between the Russian Federation and Ukraine does not contribute to restoring confidence on the world markets.
The United States and other states are seeking to expand dramatically their natural gas exports, in part, in response to the recent developments in Europe. In 2013, Congress passed legislation on natural gas. Today, many businesses in the United States and elsewhere see the unsteady natural gas deliveries to the EU as a business opportunity not to be missed. For example, Brazil and Chile are looking to expand their import capabilities. Natural gas can be exported anywhere around the world.
Business & Environmental Risks
The International Energy Agency points out that the primary risk is that the use of natural gas is seasonal. It increases during certain months, and it drops during others. German statistics show that its use of natural gas peeks in January and drops in June. Since it is seasonal, monthly and weekly data must be available, but it is not available consistently. In some regions, the transparency of natural gas flows is not clear. In addition, in recent years, the delivery of natural gas has become politicized.
From the environmental perspective, opponents of natural gas argue that fracking and other extraction methods can cause irreparable harm to the environment, including polluting water tables. Nevertheless, growing demand and interest in exporting natural gas are resulting in the continued development of the sector. If you would like more information on this topic, contact TransLegal.