As Gas Goes Global, Will Qatar Cope?

“LNG has become an increasingly important supply source in meeting the world’s energy needs,” says Andrew Walker, BG group’s head of LNG Strategy, in a commentary this summer. “Of all natural gas consumed in 2011, 10 per cent was transported between producer and market in the form of LNG.”

He says in 2011, total trade has increased nearly five times from the 1990 level, to just over 240 million tonnes. “There are 18 exporting countries and 25 importing countries spread worldwide, with many more aspiring to enter the market. We have seen the emergence of new technologies including shipboard regasification and floating production open up new markets and new supplies respectively.

The LNG trade is now truly global.

“Cargoes routinely move between the Atlantic and Pacific regions. The proportion of trade contracted on a short- term basis (defined by GIIGNL, the LNG importers group, as four years or less) has risen from around four per cent in 1990, to 18 per cent today. Multiple buyers in different regions often compete for the same supply, while multiple sellers in different regions often compete for the same buyer.

In short, LNG has been instrumental in driving the globalisation of the international gas trade.”

THE VOLUME GAME

It is now clear that the extent of the volumes of natural gas available to US shale gas producers has had game-changing implications, and that the entry of the US into the global seaborne LNG market would appear to be only a matter of time. The race is on in the US to take advantage of the swelling realisable stocks of shale gas on offer.

One of the key tasks facing the second Obama administration is clearance for the removal of restrictions of the export of natural gas from the US. As of November 29 2012, the Department of Energy had received 20 applications to export domestically produced LNG from the lower 48 states for the equivalent of 28.7 bcf/d.

Still, the construction of export terminals will take years and cost billions of dollars.

US unconventional gas will also change the way increasing proportions of the US truck fleet, as well as cars, will be powered in future, affording the US the ability to remove reliance on oil and power its roads with cheap unconventional products. Henry hub natural gas futures were quoted December 14 at a high of $3.36 per mmbtu.

The flip side of the US situation is that Qatar has seen the wind go out of its sails as the need to divert millions of tons of LNG away from the US market to new destinations has led to a market glut. Qatar made a point of coming to Japan’s aid in the aftermath of the Fukushima nuclear disaster, supplying spot cargoes quickly and without price gouging, to ensure that Japan’s gas-fired power stations could increase output.

Still, the battle lines are set for the next decade. On the supply side, Qatar will face the emergence of Australia as a new power in global LNG, while the US will also challenge its dominance.

“Asia-Pacific is becoming the new global battleground for gas suppliers from around the world,” says a Bain and Company article on the outlook for global gas markets published in December 2011. “We expect demand will grow substantially beyond traditional buyers (primarily Japan, Korea and Taiwan). That growth will come primarily from China, as well as from India and other rapidly growing Asian economies such as Thailand, Singapore and Vietnam.

“New gas supplies from West Africa, the Middle East and Australia also are arriving in Asia. Asia potentially could even import LNG from North America, though that will depend on how long it takes Australian supply to develop – and how much it costs. Asia also contains a number of potential wildcards – most important, whether China’s ability to generate its own gas supply from indigenous shale and other sources can keep up with its growing energy demand.”

To expect the dominance of pipeline gas to diminish in future seems obvious. But the enormity of the costs of seaborne LNG infrastructure will act as a break on its challenging the dominance of global pipelines.

What the emergence of global LNG will do, however, is to challenge the regional pricing differentials that are now so apparent in the world’s three major regions. Whether global LNG prices will one day drag up pipeline gas costs to their level, or vice versa, is a question for another day.