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* Transport fuel demand falling in OECD countries-BP
* Other fuels to steal third of transport sector growth-BP
* Gas could make inroads as price gap yawns
* China targets LNG for transport
* First gas-powered commercial flight left Qatar in January
By Andrew Callus
LONDON, Jan 24 (Reuters) - Crude oil's supremacy in motorfuels is pricing it out of power and industry, leaving it stuckin low-growth transport and vulnerable to a revolution thatcould favour natural gas.
International oil company BP predicts worldwide oildemand growth of just 0.8 percent a year up to 2030 - slowerthan for any other energy type and only half the projected totalenergy demand growth rate over the same period.
With cheaper fuels already pushing it out of industrial andpower generation use, any extra oil demand now has to come fromvehicles, shipping and aircraft.
But transport is slow growing. Efficiency gains broughtabout by high prices and anti-pollution regulation are the mainreason. BP's Outlook 2030 study shows the fuel economy of newcars in the United States and China falling well below 5 litresper 100 kilometre by 2030 from between 7 and 8 now. [()]
In OECD countries, transport fuel demand is set to actuallyfall as weak economies, a shift to smaller cars, and a move ontopublic transport in congested urban areas take a further toll,BP says. Worldwide, meanwhile, gas, biofuels and otheralternatives are expected to steal almost a third of what growththere might be.
There is no immediate worry for producers of oil. The worldconsumes over 30 billion barrels each year, and even with nogrowth, approaching a third of 2011 proved global reserves of1,653 billion barrels will be gone by 2030. Hence the urge tohead for the Arctic and deeper into the oceans for new supplies.
And presenting BP's report last week, chief economistChristof Ruhl called the energy industry "a slow-moving beast"and said the oil glut some now fear is no more likely than thenow discredited "peak oil" shortage predictions of a decade ago.
But he acknowledged surprise at the speed with which energyuse per unit of wealth produced is falling around the world and said the pace of development in U.S. shalegas and shale oil had shocked the industry too.
Ian Taylor of the trading giant Vitol was asked in Novemberabout future oil industry shockers, or "game changers":
"I think it's when the Chinese and Americans work out how toput gas in those trucks and only use gas for transportation," hesaid, "and I've got a horrible feeling it may come a little bitquicker than we're all anticipating."
Gas is already converging on a similar overall market shareto oil in the world's energy mix, at 26-28 percent, andinternational oil companies reflect that trend by equalisingoil/gas exploration and production portfolios.
Their heavy spending on liquefied natural gas (LNG)facilities, which freeze and squeeze gas into ocean-goingvessels, is internationalising the gas market too. BP says LNGsupplies will represent 15.5 percent of gas consumption by 2015.
It is power generation, not transport demand, that isdriving gas growth.
But by happy accident, the reduced bulk that makes LNGportable also makes it a viable transport fuel, and oilexecutives are starting to see a point at which familiarity andavailability could tip the balance away from diesel andgasoline.
In a presentation last year, Total's chiefexecutive, Christophe de Margerie, said calorie for calorie,U.S. natural gas costs one sixth the price of crude. Even withgasoline and diesel still so dominant, a U.S. truck driverconverting to natural gas derivatives could recover the cost inmonths. "Something's got to give if that differential staysaround for long," he said.
IS IT A GAS PLANE?
Royal Dutch/Shell's market-leading investments inLNG are well documented, as are its widely-promoted LNG-poweredtrucks in Canada. In October last year, it also commissioned twoLNG-powererd ships to service its Gulf of Mexico offshore rigsfrom Houston.
"You can rest assured they weren't in any way the economicoption," said a senior Shell executive. "This was about sendinga message, at the heart of the industry, at an important time."
Last year, the National Petroleum Council (NPC), a groupbacked by Shell and other big oil players, lobbied in favour of the environmental and energy security benefits of a shift tocleaner-burning gas and other oil-efficient measures,Transportation in the United States should "evolve at anaccelerated rate," it said.
Even with the powerful oil industry behind agas-for-transport revolution, the average "gas station" isunlikely to become exactly that overnight, probably leaving thebiggest single slice of the transport industry, the privatevehicle, to gasoline and diesel for some decades yet.
A more likely prize for LNG as a transport fuel is garbagetrucks and other municipal service vehicles, along with masstransit systems like buses.
Trains, ships, and even aircraft are all potential targetstoo. Buses powered by compressed natural gas (CNG) - LNG's lesspotent older brother - already ply the streets of Dallas andother cities. Rotterdam and Singapore have both outlined plansto become a hub for LNG-powered shipping.
There's plenty to aim at here.
International shipping and aviation fuel plus road freightwill account for about 15 million barrels a day of oil demand by2035, according to the International Energy Agency (IEA). Thatis a quarter of the projected 60 million barrel dailyoil-for-transport pot. [()]
LNG-powered ships are already a reality, even though thefleet is modest for now. A report by ship classifiers Det NorskeVeritas last year predicted that 30 percent of new vessels willbe LNG-powered by 2020. Tankers that carry LNG are an obviousearly target. Another classifier, Lloyd's Register, said the useof LNG as a fuel will pick up from 2019 and could be as much as8 percent of global bunker fuel demand before 2025.
Airlines have yet to crack the LNG nut, but the firstcommercial gas-powered civil aircraft flight left Doha forLondon on Jan. 9 this year, fuelled by another potentialgas-to-transport game-changer - jet fuel made from gas.
Gas-to-liquids (GTL) technology is, for the time being, onlyeconomic on the very biggest scale. Shell's Pearl GTL plant inQatar taps the world's biggest stand-alone gasfield and supplied the fuel for that Qatar Airways AirbusA340-600 flight. Cheap U.S. gas is changing that, and Shell islooking to copy its Pearl success in the United States.
BP's figures puts gas at 5 percent of the transport fuelmarket by 2030, overtaking biofuels, which are already near thatlevel. Oil's share will have fallen by then to 89 percent from94 percent presently.
CHINA THE KEY
Nowhere is the pressure on oil-based transport fuelsstronger than in the United States, where oil's biggestcompetitor, natural gas, has become very cheap - also as aresult of innovations at the production end of the industry.
It is hard to measure how much fuel substitution ishappening already, but analysts point to U.S. Energy InformationAgency (EIA) data showing diesel mysteriously stuck below its 4million barrels a day pre-financial crisis levels, even thoughthe economy has been expanding since 2009.
U.S. price gaps aside, BP's predictions, like those of otherforecasters, put China centre stage as the driver of globalenergy demand growth.
It says China will account for approaching half of the 0.8percent a year growth in oil demand it expects by 2030 - some 7million barrels a day out of a total extra 16 million barrels.
Here again, LNG could make inroads.
In October last year, China unveiled a policy specificallydesigned to spur the transport sector's use of LNG as part ofits push to clean up the heavily polluted air of its cities.
The Natural Development & Reform Commission policy targetsbuses, taxis and shipping and sets a target for gas to fill 10percent of energy demand by the end of the decade.
Five LNG import terminals have already sprung up alongChina's east coast, and another dozen are planned. That is gasfor the decades to come.
Beyond that, a recent EIA report made China the site of thebiggest technologically recoverable reserves in the world of theshale gas that is changing the U.S. energy landscape.
"If the Chinese could do this, it would have enormousimplications for them, for the oil industry, and possibly forglobal LNG trade too," EIA chief Adam Sieminski said in aninterview in November 2012.
