Global Natural Gas

NATURAL gas represents a new global energy business with far-reaching impact on national economies. Natural gas trade is being accomplished with long-distance pipelines and through Liquefied Natural Gas (LNG), transported in tankers, flexible to change directions on the high seas to respond to sudden shifts in demand or prices.

Global demand for gas remains strong (over 3,000 BCM in 2010), supported by demand for energy in developed and emerging economies, as well as the increasing preference by environmental policies for the use of natural gas over other fuels. With growing demand and declining reserves in the major consuming countries, gas demand is increasingly being met by imports, thereby driving a steady increase in the proportion of total gas consumed that is traded internationally. Within this, LNG has assumed a key role, growing steadily and providing the much needed diversity and security of supply – a major concern of many buyers.

Global growth in LNG demand continues to centre in Asia, driven mainly by China and India whose imports were 24% and 35% higher in 2011 than in 2010 respectively. Other Asian countries that have turned to LNG imports to mitigate their energy shortfalls include Japan, Thailand, Malaysia, Pakistan, Indonesia and Singapore. Total LNG supply to Asia is expected to grow from 203 Bcm in 2010 to 222 Bcm in 2013.

For Europe, market analysts have predicted that up to 2020, there is more upside risks for European prices as demand continues to exceed expectation, and despite the current slide towards recession, LNG demand from European countries is expected to remain strong in the medium term.

On the supply side, the growth of LNG production remains robust. This has been spurred by Qatar who recently added 77mta to the global LNG supply, and Australia, which has taken FID for 10 projects, to deliver 81mta by 2017. In addition, the huge unconventional shale gas discoveries in the US, with over 100 years supply of natural gas, has led to the reduction in its reliance on imports, and created the potential for export for a country that used to have strong LNG import projections. An example of the impact of this has been that LNG price in the US, the Henry Hub price marker, has fallen from peaks of $15/mmbtu in 2005 to less than $3/mmbtu today.

Also, there have been shale gas discoveries in Poland, China, etc, and Russia is aggressively building more pipelines to Europe to deliver more natural gas.

Thus, the potential medium term supply saturation may leave only a limited window of opportunity for LNG projects to remain robust, and whilst demand will likely continue for LNG cargoes, future pricing may become less favorable due to an excess of additional supplies.