North America has yet to see the arrival of the quantity of liquefied natural gas (LNG) envisioned just a few years ago, but the global commodity is on its way, and its impact on gas supply balancing is yet to be fully imagined.
Industry executives speaking on the topic in Houston last week were at a loss to say exactly what will happen once more substantial quantities of LNG are traveling the seas from source to market, with an increasing number of course changes in between. North America, Europe and Asia manage the supply balancing challenge differently, as best fits their respective markets. These differing approaches could be complementary to one another with the advent of more LNG, or they could put markets in conflict.
One difference, for instance: North America has more gas storage capacity available than Europe. One question is whether North America has enough. For now the answer is yes, according to Bill Garner, Spectra Energy Corp. group executive. For the next two years North American storage is adequate, he said, but in the next decade things could change significantly. Unknowns, he said, include the impact of still-unseen climate change policies on natural gas demand (read that as a potential for more gas-fired power generation); Mexico's lack of gas storage and what the country might do to change that situation; and how Canada will respond to geologic challenges to developing gas storage on its coasts.
The northeastern U.S. and Maritime Canada do not have the capability to develop all the storage they will ultimately need, Garner said. And there likely won't be enough LNG coming to the United States to satisfy infrastructure being developed in both the Gulf Coast region and the East Coast, he said. "There are going to be some real winners and losers, depending on how that plays out in the next five years," he said.
Garner spoke on a panel titled "Gas Storage, Arbitrage and Swing: The Balancing Act Goes Global" at Cambridge Energy Research Associates' 27th annual conference in Houston.
CERA's Simon Blakey, senior director of European research, also was on the panel. Keying off earlier remarks by fellow panelist Guy Caruso of the Energy Information Administration, Blakey described the massive gas storage infrastructure of the United States as a legacy of wellhead price controls, noting that from across the Atlantic it looks rather unusual. In Europe supply swing is managed at the wellhead, as Blakey noted and to which panelist Anton Broenink, an executive director with Netherlands' GasTerra BV, attested. And in Asia swing is managed through the management of LNG cargo delivery.
Each of these markets and swing-management methodologies will be forced to adapt over the next five to 10 years as gas markets become increasingly linked via LNG, Blakey said. According to panelist Philip Olivier, CEO of Suez Global LNG, divertible LNG cargoes will account for about 20% of global LNG and 2% of global gas demand this year, and those numbers will grow in the coming years.
In Europe, for instance, gas markets will migrate from dependency on indigenous supply to greater reliance on imports, noted Broenink. Additionally, field production declines will reduce the capability of producers to tailor output to demand. For instance, GasTerra currently can swing to the degree of 250% of its average sales currently, Broenink said.
As for the United States, "it's going to be a great swing market for LNG," said Caruso, "but the uncertainty is enormous."
To whatever degree international gas markets and their traders are unable to digest global LNG, the Dubai Multi Commodities Center (DMCC), a project of the Dubai government, would like to help out (see NGI, June 25, 2007). The DMCC was created to establish a commodity marketplace in Dubai and provide market infrastructure for the gold and precious metals, diamonds and colored stones, energy and other commodities industries. To the gas industry that means LNG storage, a whole lot of it.
Panelist Tilak Doshi, DMCC executive director for energy, said nine to 15 LNG storage tanks of 200,000 cubic meters each are planned. He said the project is in the final stages of negotiations with its partners and customer talks could begin in the first quarter. As testament to the growing role of the Middle East in the global LNG market, Doshi presented charts showing the United States accounting for but a sliver of contracted LNG supply from the region in 2005. In the same year Asia accounted for about three-quarters of Middle East LNG. By 2010 the share of the United States will grow to more than 25% as Asia's share shrinks, according to statistics presented by Doshi.
He conceded that there has been talk of developing a similar LNG market hub in Singapore, but he dismissed its prospects as the region is "too much in the Asian theater" and the fact that Dubai is the "tipping point" between European and Asian LNG markets.
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