Gastech: WoodMac expects global gas dependencies to continue, tighten

By OGJ editors
AMSTERDAM, Mar. 21
-- Global interdependencies among gas markets will continue over the next decade, said Wood Mackenzie’s Noel Tomnay, head of global gas research, in remarks to Gastech in Amsterdam on Mar. 21. This trend will influence pricing in the global gas market, he said.

Tomnay pointed to the likelihood of North American LNG exports, the continuation of tight Asian gas markets, and European concerns for security of supply.

Recently, he said, “we’ve seen linkages between the US, Europe, and Asia in various forms, and looking out to 2020, each region’s gas market dynamics will continue to influence supply and demand and regional gas prices.”

WoodMac’s data suggest North America will remain disconnected as oversupply depresses Henry Hub prices. But it “will not be isolated,” said Tomnay. North American movements towards becoming an LNG exporter will have an “implicit impact” on price, “even before the first molecule of LNG is loaded on a ship.”

North American LNG exports pose several questions for the global gas market:

• How much LNG volume can be exported before it becomes self-limiting?

• What will choke volumes first: rising US gas prices that make it uneconomic or the fear of price rises that might drive vested interests to persuade regulators to restrict exports?

• Will the threat of North American LNG exports impose a future ceiling for European gas prices?

In contrast to North America being awash with gas, he said, the challenge for Asia-Pacific markets is lack of supply: With nearby Pacific-produced LNG insufficient to meet growing demand in the medium term, we can anticipate a “growing reliance” on Middle East and Atlantic LNG imports.

“Particularly between 2013 and 2016, the market in Asia is looking tight, and recent events may increase this tightness, which in turn would have repercussions for Europe,” he said. If Europe also tightens at the same time, as seems increasingly likely, we may see a “pronounced price spike.” In the longer term, Tomnay said, the high cost of new Australian LNG projects will keep Asia Pacific long-term contract prices high.

Europe, on the other hand and in the medium term especially, remains more vulnerable to supply issues. “The last few years of oversupply may have resulted in European complacency regarding supply security,” he said. WoodMac’s analysis, however, suggests that Europe could be as much as 100 billion cu m short of gas in as few as 7 years.

Addressing this requires supply projects in addition to those already planned. Medium term, it’s likely that Europe will compete with Asia for LNG supply and rely more on supply from Russia.

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