Gastech: Panelists debate market sustainability in light of shale gas development

In several senses, security governed the discussion on the opening day at Gastech in London. Executive panels through the day explored various meanings of the word and implications of the concept.

In the morning, the opening global executive panel looked at whether the worldwide gas industry and its markets had entered the “Golden Age” of gas. Its premises were markets’ increasing desire to burn a less-polluting fuel as well as prospects for huge reserves resulting from shale play developments, especially in North America.

The regional executive panels in the afternoon looked at Europe’s ongoing dilemmas in attempting to secure natural gas supplies from a variety of sources and in many forms. Another regional panel looked the role of the US and Canada in supplying gas to world markets and the extent of its influence.

On the brink

Little doubt seems to remain among suppliers and markets that natural gas stands on the brink of a new era. That’s confirmed, if it needed to be, by the expansion of gas reserves in North America and prospects for the technologies behind it being applied in several other global regions.

What is perhaps in doubt, according to morning panelist Tokyo Gas Ltd.’s Shigeru Miraki, is how LNG exports from North America will be priced and whether oil-indexed pricing will continue in Asian markets. “Oil-indexed pricing is no longer rational,” he said, sounding a common theme throughout the day that oil indexation is (or should be) seeing its last days as a global pricing mechanism.

If the US gas price to Japan is $9-10/Mcf of gas equivalent, said Miraki, Japanese demand will reach 90-100 million tonnes/year (tpy) sooner rather than later. So long as the country’s gas market is governed by oil indexation, however, the price will be higher and demand therefore lower.

Underscoring the perception of natural gas as a greener fuel, RasGas Co. Ltd.’s Khalid Sultan Al-Kuwari said gas is not only a bridge but also a “highway to a greener future.” In response to a question about the effect of growing Australia LNG export capacity, he said Qatar is a “reliable but also a flexible supplier.”

So where does that leave traditional suppliers? Sonatrach’s Djeloul Bachi-Bensaad said the state company, once the world’s largest exporter of LNG, is investing $70 billion over 5 years—70% of which towards upstream development—to ensure supply to Europe remains reliable.

Supply security

The thorny question of European supply and demand—in a liberalized yet securely supplied marketplace—was addressed in another session.

There, BG Group’s Chris Finlayson said European markets aspire to supply diversity and market liberalization but are unwilling to make a commitment to ensure either.

RWE Supply & Trading’s Stefan Judisch said Continental Europe, as exemplified by Germany, is “inflicted” by renewables because, he said, subsidies for solar-generated energy skew demand vs. gas-fired electricity generation.

“Oil is a global commodity, he said; “gas is a regional one…. Price integration must reflect the dynamics of supply and demand for gas not for oil.”

Finlayson said that, in Europe, there is one certainty: Regional gas production will continue to fall. Therefore, imports via pipeline from Russia and Norway and via LNG will fill the demand.

Alexander V. Novak, Russian Federation’s minister of energy, said that Russia is more than willing to be a long-term supplier. But, he sees the need for more level playing field between European Union and non-EU countries.

US LNG

Richard F. Guerrant, ExxonMobil Corp. vice-president for LNG, ExxonMobil Gas & Power Marketing, said what’s happened in the US ensures “about 100 years equivalent of gas supply.”

But governments must “adopt wise energy policies and embrace free markets and free-trade principles and understand the sanctity of contracts.”

He also said, “free-market solutions, understood by government, are the keys to a successful project.”

Cherif Souki, chairman and chief executive officer of Cheniere Energy, whose LNG export project is the first and only one so far to be under construction, credited the regulatory environment in the US regulatory environment for the company’s success in reaching that milestone.

Elizabeth Spomer, BG Group’s senior vice-president for business development, pointed out how volatile Henry Hub pricing has been for the last 15 years; “Pricing out a 20-year contract, based on the last 15 years of HH, is not really for the faint of heart.”

She believes, when the US export-project proposal frenzy settles, exports will be limited to about 45 million tpy by project stakeholders and by markets; “this is lean gas, not all Asian buyers can take it.”

The global market, especially Asian demand by 2020, is going to need other supply sources.

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

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