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Global Gas Glut Could Be Gone by 2012, Analyst Says

A current worldwide oversupply of natural gas may dissipate as early as the winter of 2012, leading to the potential for spot prices higher than contract prices in Asia and Europe, according to analysts at Wood Mackenzie.

"The global oversupply of gas, which was previously forecast to end in 2015, will now likely end in 2013 and possibly as early as 2012," said Noel Tomnay, Wood Mackenzie's head of Global Gas. "This oversupply is most manifest in Europe, which has become the market of last resort for LNG [liquefied natural gas] supply."

Such a supply reduction -- and the likelihood of increasing gas prices that would come with it -- might be welcome news for North American producers, who have seen burgeoning production from shale plays help to create gas gluts and naggingly low prices at home.

Political unrest in the Middle East and North Africa has removed 8 billion cubic meters (Bcm) from the global gas market, and the recent earthquake, tsunami and nuclear backlash in Japan resulted in increased LNG demand there, Tomnay said. If LNG supplies from Nigeria, Algeria or elsewhere are disrupted -- as they have been at times in the last two years -- that could exacerbate the situation, he said.

"Should such outages coincide with a cold winter, such an event combined with ongoing Libyan gas supply disruption could remove Europe's gas cushion entirely by as early as winter of 2012."

The economic crisis, strong growth in U.S. unconventional gas production and a surge in LNG capacity have all helped to develop a "sizable glut of global gas supply capacity" that is set to reach more than 200 Bcm this year, according to a recent report by the International Energy Agency (IEA) (see Daily GPI, Nov. 10, 2010). Contrary to the Wood Mackenzie forecast, IEA chief economist Fatih Birol said the gas glut could grow in 2011 and last up to a decade.

While many market watchers agree that there is a current gas glut, some within the industry don't see it that way. Among the dissenters is global gas producer BG Group plc, whose CEO recently said IEA is "on its own" with its "conservative views" (see Shale Daily, Feb. 9). World gas demand, according to BG forecasts, is tracking to jump by one-third over the next decade and will more than match any production increases.

"I fail to see where this [glut] is going to come from...in order to meet growing demand," BG CEO Frank Chapman said.

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