Potential regulation to tighten carbon dioxide emissions in the US could increase demand for natural gas and pit the US against Europe in a bid to secure future supplies, according to a newly released report.
Global management firm Booz & Co. warned in its report that investments in European LNG import infrastructure may not pay off if LNG from the Middle East and North Africa is redirected towards the US. “Replacing these volumes in Europe might require additional pipeline gas from Russia and cause further dependency on Russia.”
The report, “A Journey from a Regional Gas Market to a Global Market,” analyzed how regional markets of Europe, the Americas, the Middle East, and Asia are becoming interconnected via LNG.
By 2015, gas demand will increase by up to 84 billion cu m, according to Booz, and most of this will be met by LNG imports. Booz said the US may turn to using more gas for power in the mid-term because it has been unable to develop on time other sources of energy such as nuclear or clean coal to meet the looming power gap across several states. Because US domestic gas production will likely not be able to meet a rise in demand, its market will have to compete more strongly for international gas supplies.
Europe has invested in as many as 30 European regasification expansion and newbuild projects that will have a total capacity of about 130 billion cu m by 2015. However companies may divert LNG destined for Europe from the Caribbean, North Africa, and the Middle East to the US instead.
“Carbon dioxide regulation is becoming more global, and therefore, creating a more global gas market with implications on volume flows and price levels,” said Jake Leslie Melville, Booz vice-president.
Melville urged companies to have alternative plans to source energy, including increasing imports through existing pipelines or developing new supply routes such as the proposed Nabucco pipeline.
But gas prices in the Atlantic Basin are likely to soar and become more volatile because of increased gas demand and larger connectivity between the Americas and the European gas markets.
“European gas importers and governments should more explicitly consider the globalizing nature and interdependency of their regional gas markets,” the Booz report said.
