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CERAWeek: LNG industry struggles with supply abundance, global recession

Warren R. True
OGJ Chief Technology Editor-LNG/Gas Processing

HOUSTON, Mar. 10 -- Global LNG players are struggling with the current abundance of LNG capacity and the companion spike in supply from unconventional sources, mainly shale gas in North America.

At CERAWeek 2010 in Houston on Mar. 10, a panel of LNG experts addressed the near and midterm effects of the surplus in natural gas supply.

IHS CERA’s view
IHS CERA’s LNG specialist Rafael McDonald said the current glut of gas came about from an unexpected confluence of factors.

Clearly, the industry could see greater LNG supply coming in 2009-10, based on final investment decisions taken 2004-06. Through 2008, LNG supply capacity evinced steady growth.

But industry failed to foresee the growth in shale gas reserves or its speed, almost exclusively in North America, nor did anyone anticipate the global economic recession that hit in 2008, depressing gas demand worldwide.

Combined increases in LNG and North American shale gas capacity in 2009 were an estimated 14 bcfd; demand, however, fell by an estimated 3.5 bcfd last year, according to IHS CERA figures.

The supply surge drove down prices in UK and US, while global gas prices followed after a brief period of staying on par with oil prices. Flows also changed as Asian requirements for Atlantic Basin LNG were much lower, and LNG cargoes stayed away from North America as best they could.

McDonald sees no changes to supply in the future, noting it is nearly technically impossible for LNG producers to turn down their plants. Their financial incentives will push them to produce as much as they can.

At the same time, pressures are beginning to mount in LNG producing countries to serve domestic needs, he said. Local suppliers, especially in Asia, face a dilemma of which market to serve: the more financially rewarding international one or the rapidly growing domestic one.

Japan and Korea especially are recovering faster than most other economies. “LNG demand,” said McDonald, is “GDP driven.” Low prices are also making it easier to find more buyers, as exemplified by the growing markets in India and China.

Kitimat’s position
For Kitimat LNG Pres. Rosemary Boulton, the impact of shale gas volumes is and will be positive, forcing her company to see the advantages of being a supplier to Pacific Basin LNG markets, rather than another consumer.

She cautioned, however, that the Kitimat project does not depend on shale gas developments but can be well supported by conventional reserves in the same Western Canada supply basin. She said the two shale plays—Horn River and Montney Bay—will treble reserves in 5 years.

Shale gas developments in the Lower 48 will push imports from Canada back into the country “creating a gas bubble in Canada” and confirming the wisdom of her company’s plans.

Contact Warren R. True at warrent@ogjonline.com.


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