As Canadian imports decline and liquid natural gas (LNG) becomes a key element in U.S. supply, demand fluctuations in other parts of the world will have more of an effect on prices in the United States than ever before. Storage limitations in Korea, a Japanese nuclear reactor being knocked off line by an earthquake or other overseas events can have major impacts on prices in the United States, a ConocoPhillips executive said.
Jim Duncan, ConocoPhillips market research director, echoed the findings of an August report issued by the Friedman, Billings, Ramsey & Co. Inc. research division, which predicted that Japan's increased demand for LNG following a recent earthquake could lead to tightening of the domestic natural gas market (see NGI, Aug. 6). The Tokyo Electric Power Co. has said its major power plant, the largest nuclear facility in the world, would likely be closed through March 2008 to repair damage from a July 16 earthquake, leaving a 8,200 MW power gap in Japan's energy supply.
The increased Japanese demand, coupled with more supplies going to Europe, which has its own natural gas problems, would mean less LNG for the United States, Duncan told attendees at the LDC Forum Mid-Continent in suburban Chicago. All of the international interplay reflects the growing effect global markets have on the U.S. market.
According to Nexen Marketing Director David Slater, production at one of the United State's most dependable sources -- Western Canada -- is leveling off. The number of new gas wells in the Western Canada Sedimentary Basin has risen steadily since the early 1990s, while the average peak rate per well has dropped almost equally, he said.
"In Alberta, we're definitely seeing the basin mature," Slater said. "The challenge is greater, year after year, to maintain production." Unconventional supplies in Canada -- including tight gas and coalbed methane (CBM) -- are "huge" and will help to fill any gaps, Slater said, but are not likely to overtake conventional oil and gas in the marketplace. "[CBM] is not a silver bullet," Slater said. "The conventional basin will be a large part of the future in Alberta."
Scott Speaker, JPMorgan Chase Bank vice president, also stressed the increasing importance of LNG to the U.S. gas market in coming years.
"The volume of capital flowing into the LNG industry, both domestically and internationally, make LNG's inclusion in the global market somewhat of a self-fulfilling prophecy," Speaker said.
Will there be enough? Worldwide LNG supplies will surge through 2011, but there is some question about the next tranche of supply after that because no new projects started construction in 2006, leaving output in doubt until at least 2012, according to Peter Rosenthal, vice president of market analysis for Constellation Energy.
Jeff Cardiff, Midwest marketing manager of Total Gas and Power North America Inc., said worldwide gas consumption is expected to grow from 99.75 Tcf in 2005 to an estimated 149.9 Tcf in 2020. LNG supply is tight and will remain so until additional liquefaction capacity is developed, probably between 2010 and 2015, he said.
LNG supply is expected to grow by about 1 Tcf/y through 2010. The largest growth of LNG supply will be from the Middle East, with Qatar becoming the top LNG producer. Rosenthal said Qatar will add 7.3 Bcf/d by the end of 2011.
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