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'Strategic Changes' Under Way in Global Gas Markets

The fundamentals of the natural gas industry worldwide have changed, with reduced demand and an oversupply creating a "strategic change" for suppliers and a "tougher" long-term pricing outlook, Wood Mackenzie researchers said in a report.

Neil Thomas, who heads the gas research arm for the UK-based consultant, presented the report's findings at last week's World Gas Conference in Buenos Aires, Argentina.

"Our global gas demand outlook is 200 billion cubic meters per annum less in 2015 than it was 18 months ago, pre-economic crisis," Thomas said of natural gas. "The new reality for the global gas industry is reduced demand and oversupply, the effects of which will be felt in the medium and long term."

However, Thomas told conference delegates that Wood Mackenzie's long-term forecast for global gas demand to 2020 from 2008 is a 2.4% compound annual growth rate (CAGR), with Asia Pacific remaining the strongest demand growth region at 4.5% CAGR.

"The reduced demand outlook is being realized at the same time as significant additional supply is coming to the market, including considerable unconventional gas from onshore North American producers, something not anticipated just a few years ago," Thomas noted.

As a result of faltering demand, Wood Mackenzie researchers concluded that major gas suppliers, Russia and Qatar in particular, will need to adjust their export strategies, including those for liquefied natural gas (LNG), to the new external environment. According to the report, gas markets around the world are no longer operating in isolation, and interconnectivity is a feature of the "new, truly global" gas industry.

"For Russia the challenge is developing their massive potential gas supply and diversifying markets away from Europe -- requiring capital-intensive infrastructure development such as further liquefaction facilities and new pipelines to China, possibly competing for capital with some current Europe pipeline plans," Thomas said.

"With Atlantic [Basin] spot gas prices depressed, Qatar may seek to reroute much of its LNG earmarked for the Atlantic to the Pacific instead. This additional supply competition in the Pacific could be bad news for some new Australian LNG projects seeking market and could further deteriorate Pacific LNG pricing levels" (see related story).

China is considered to be in the best position to take advantage of the changing dynamics with renewed import options from Central Asia and Russia putting pressure on some estimates of China LNG import requirements, according to Wood Mackenzie.

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