Cedigaz: Global recession to offset gas supply gains

Doris Leblond
OGJ Correspondent

PARIS, July 1 -- The 4% increase in global natural gas supplies in 2008 to 3.06 trillion cu m will “practically be wiped out” in 2009 because of the economic recession, according to the latest production trends report by Cedigaz, the Paris-based international gas association.

Last year, the global industry posted a record performance worldwide, partially offset by the sharp economic slowdown starting in second half 2008.

Declining production from mature fields in a number of areas and hurricanes that cut Gulf of Mexico production 16% also offset the record performance. The economic recession continues reducing global gas production in 2009, with the largest cuts evident in Russia, the North Sea Basin countries, and North America.

It was in these areas that production was especially high last year. In North America, output rose 4.2% and accounted for 26.1% of the world's gas market share. In the US, first half 2008 production rose 7.8% to 582.2 billion cu m (bcm) spurred by unconventional gas, namely shale gas in Texas, accounting for 51% of total US output.

Russia
While the former Soviet Union's market share last year dipped to 26.7% from 27.1% with a gas output that increased 2.4% with robust production growth in Caspian countries, this year's production is expected to fall sharply at a rate of 15% due to lower domestic sales and export cuts.

Natural gas production is expected to drop sharply in 2009 in Uzbekistan and Turkmenistan, due to massively lower exports to Russia, partly because of a pipeline explosion in Turkmenistan. This is in sharp contrast to last year when Turkmenistan's production rose 2.3%, Uzbekistan's 3.6%, and Kazakhstan's by 12.9%.

Europe gas production
Following record growth in 2008 of European gas production, which maintained a 9.8% global market share, a drop is expected in the North Sea over this year with a double-digit decline likely in the UK due to natural depletion, declining domestic consumption, and record low prices particularly impacting dry gas production that accounted last year for over 40% of domestic output.

For the first time since the early 1990s, Europe posted a gas production growth rate of 4.2% to 301 bcm in 2008, said Cedigaz. This was due to the UK’s dry gas production, development of new fields in Norway, and enhanced production from the Groningen field in the Netherlands.

In Norway, net production soared from 89.7 bcm in 2007 to 99.2 bcm in 2008 by additional production from recent fields outside the North Sea, such as Ormen Lange and Snohvit, also on Njord and Stratjord fields. Mature fields like Kvitebjorn and Oseberg also recorded higher volumes after temporarily reduced volumes in 2007; These gains largely compensated for Troll's decline from 35.8 bcm to 29.7 bcm.

In Denmark, production increased from 9.2 to 10.1 bcm while structural production decline in Germany, Italy, and France continued. In Romania, production fell rapidly by almost 1 bcm.

Middle East market
Middle East natural gas recorded the largest production growth last year for a 12.4% share of world output, up from 12.2% in 2007. Expansion should continue in 2009, even if growth is driven by a few countries like Qatar and Yemen in line with increasing LNG exports, as well as Iran where gas shortages in the residential sector have been eased by South Pars Phases 9 and 10.

However, a decline in gas production by Saudi Arabia and Abu Dhabi is expected this year, reversing the steady growth posted over the last decade. Cedigaz cited two reasons: reduced production of associated gas as oil is shut in and low prices for dry gas.

Asia
The gas bubble in Asia where production increased last year by 5.3% is expected to expand further in 2009 through a drastic cut in LNG exports and excess supply from the start-up of high profile upstream projects, especially in India with its Krishna Godavari-D6 gas field; Indonesia, where production rose last year by 2.1% to just over 70 bcm but where the volume of flared gas jumped 16.8% to 3.2 bcm; and Malaysia, where production increased 3.2% in 2008 to 57.3 bcm boosted by first gas from Tabu field off Sarawak.

Adding to the bubble is the fact that China last year, posted its largest absolute growth in marketed gas production, up 12.3% to 71.1 bcm. The bubble caused record low spot prices this year in Asia, causing massive LNG diversions to China and India where gas has become competitive. The exception is Myanmar, where gas production fell dramatically last year by more than 8%, impacting pipeline exports to Thailand.

Latin America
Cedigaz notes Latin America gas production in 2009 is expected to fall faster in the second half of 2009 than in 2008 through the first half of 2009 when average growth fell 2.7% and the region's share of the world gas market dipped from 5% in 2007 to 4.9%. This is due to competitive inflows of LNG and declining industrial consumption in Argentina and Brazil.

In 2008 gas production growth patterns showed wide disparities among countries that could continue this year. Production soared in Brazil by 28.4% to 12.6 bcm as two new projects came on stream: the Peroa offshore dry-gas field in the Espirito Santo basin and the Martin Leste FPU associated-gas field in November.

In Peru, gas production increased from 2.7 bcm in 2007 to 3.4 bcm. In Columbia, production increased by 18% to 9 bcm, including 8 bcm from Ecopetrol SA and associates. Ecopetrol boosted production from 4.20 bcm to 4.96 bcm, gaining 58% market share at year end.

In Trinidad and Tobago, gas production rose slightly by 0.8% to satisfy higher domestic needs and more reliable operation of the Atlantic LNG train 4 in first half of the year. But in Venezuela gross gas production fell 1.7% to 70.6 bcm, while in Bolivia it increased by 1.2%.

In Chile, domestic production fell 5.7% to 1.65 bcm while Argentina, which accounted for over 29% of regional production, posted a marketed drop of 1.7% to 44.1 bcm.

Africa
Thierry Rouard, who replaced Marie-Francoise Chabrelie as Sec.-Gen. of Cedigaz, told OGJ it has been difficult both to assess Africa's gas production last year and even more difficult to provide trends for this year. However, he indicated gas production increased 4.5% in 2008, but the economic downturn would touch Egypt and Libya this year.

Last year, production increased in Egypt by 3.9% to 48.3 bcm and in Libya by 4% to 15.9 bcm. Algeria's production fell slightly from 86.3 bcm in 2007 to 84.8 bcm.