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LNG market changing as gas demand rises Worldwatch Institute report describes steady growth in gas consumption and production, with a changing LNG distribution pattern Alan Bailey Petroleum News
Despite a dip in 2009 following the 2008 financial crisis, worldwide natural gas consumption and production continue on a decades-long upward trend, according to a “Vital Signs” report published in December by the Worldwatch Institute. And, with an increasing number of countries importing liquefied natural gas, or LNG, the geographic pattern of trading in LNG is changing, the report says.
Data through 2010 show an almost linear year-on-year increase in gas usage since 1970 — in 2010 natural gas accounted for 23.8 percent of worldwide primary energy use, the report says.
Unconventional sources Although proven natural gas reserves only increased globally by 0.3 percent in 2010, research published in recent years suggests that unconventional gas sources such as shale gas, coalbed methane and tight gas sands could hold as much recoverable gas as the conventional gas fields that have been the mainstay of gas production in the past. In 2010 the United States and Canada accounted for the bulk of unconventional gas production, but Australia, Poland, Germany, the United Kingdom and China are all pursuing the development of unconventional gas resources, the report says.
The Middle East and Russia together account for more than 70 percent of worldwide conventional natural gas reserves.
In 2009 and 2010 the United States was the world’s largest natural gas producer, just ahead of Russia and accounting for just under one fifth of global gas production, the report says.
In 2010 Russia maintained its position as the world’s largest natural gas exporter, with 27.5 percent of the world’s pipeline gas trade. However, the opening of new gas pipelines may erode Russian dominance over gas supplies to Eastern Europe. And the European Union has been seeking alternatives to Russian pipeline gas, following supply disruption in 2009 as a result of a dispute between Russia and Ukraine, the report says.
Increased consumption Natural gas consumption in the United States jumped by 1.3 trillion cubic feet to 24.1 tcf in 2010. Although consumption in Europe increased to 17.7 tcf, Europe’s share of global gas consumption dropped after remaining fairly static at around 20 percent for the last three decades, the report says.
Asian demand for natural gas, especially in China, has grown rapidly, with China, India, South Korea and Taiwan all seeing demand growth of more than 20 percent in 2010. China consumed 3.9 tcf of natural gas in 2010 and the country has a strategic plan to double natural gas’s share of the country’s overall energy mix by 2015, the report says.
And, with the Middle East currently exporting much of the region’s prolific gas production, many people view this region has having major growth potential in natural gas usage.
In 2010 there were major disparities in natural gas prices across the world, with the average Henry Hub spot market price in the United States being $4.39 per million British thermal unit, while LNG attained an average price of $10.91 per million Btu in Asia. The average price on the British National Balancing Point Hub was $6.56 per million Btu. All of these prices represented rises from 2009, as gas demand recovered after the world economic recession. However, on an energy-equivalent basis, natural gas in all markets remained cheaper than crude oil, the report says.
More LNG With a global trade of 10.5 tcf, the share of gas traded as LNG exceeded 30 percent for the first time in 2010. About half of this increase came from Qatar, although LNG production from Australia, Indonesia and Malaysia also increased substantially. Australia, with major coalbed methane and conventional gas resources, accounts for 63 percent of worldwide LNG liquefaction facilities under construction, the report says.
Imports by Asian countries dominated the LNG market in 2010, with Japan in particular importing 3.3 tcf of gas in the form of LNG. South Korea imported 1.57 tcf and China imported 0.45 tcf. Europe imported 3.1 tcf of gas as LNG, while U.S. LNG imports fell as abundant, cheap natural gas supplies became available in North America.
Changing trade However, with six countries, five of them in South America and the Middle East, starting to import LNG between 2005 and 2010, the global LNG trade is changing, the report says.
Major geopolitical events in 2011 have also impacted the dynamics of the gas market. Political unrest in North Africa disrupted gas supplies from that region over periods of several months. And the tsunami and ensuing nuclear disaster in Japan pushed up gas demand in that country, as gas fueled power generation replaced the generation capacity of shut in or damaged nuclear plants. Continuing opposition to nuclear power will likely continue to push up gas demand, the report says.
According to a recent Platts podcast on European gas markets, a mild winter so far in that continent coupled with new pipelines coming on line have resulted in plentiful supplies of gas in Europe — European gas prices are somewhat lower than a year ago, with an especially large price differential with LNG delivered to the Asian market. Of particular significance for European gas supplies are a new pipeline from Russia to Germany that bypasses Ukraine and a new pipeline from Algeria into Spain, the Platts report says.
Although Europe continues to import LNG and has opened a new LNG terminal, gas buyers in a soft European market are reluctant to pay the oil-indexed prices that Asian buyers accept. But, with high Asian demand, the spot market in LNG is very tight, the Platts report says.
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