U.S. shale natural gas production today is half the size of the global liquefied natural gas (LNG) business, which doesn't bode well for those with designs on imports but is a positive for proposed export facilities, the Houston-based chief of Gazprom Marketing & Trading USA (GM&T) said Monday.
John Hattenberger, president of the U.S. marketing arm of Russia's OAO Gazprom, spoke at the opening plenary of the World Energy Council's Houston Business Forum, which brought together delegates from 20 countries.
Ironically, the U.S. division was launched to market imported Russian LNG in North America, beginning at the end of 2009. Gazprom, the world's largest gas producer, holds 18% of the global gas reserves and is the 25th largest gas marketer in the United States. However, North American shale led GM&T to revamp its strategy.
"We market other people's gas," Hattenberger noted. "I must admit I didn't see shale coming." But that hasn't dimmed GM&T. Today the marketing unit is focused on the possibilities of marketing LNG exports from North America to supply "robust gas demand growth" around the world.
"The U.S. is the world's largest gas market. North America is responsible for 25% of global supply and demand," Hattenberger noted. "What happens in North America affects the globe. I think today we are in the golden age of gas. If the 20th century was all about oil, then the 21st century will be all about gas..."
Formidable unconventional gas supplies are greatly affecting world markets, he said.
"The latest view is that U.S. shale gas is producing 19 Bcf/d, which is up 60% from 2010," Hattenberger said, using some preliminary data. "U.S. shale gas is already half the size of the global LNG business." LNG supplies about 9% of the world's gas needs and U.S. shale gas comprises 5% of the world's total gas, he noted.
With an estimated 8 Bcf/d drop in LNG demand in the United States, shale gas displaced U.S. LNG import prospects, which are now expected to supply less than 3% of domestic demand. With an oversupply in North America, it makes sense to send it to markets in need and for higher prices, he said.
"We see continued growth in gas demand worldwide. Gas demand is expected to be 2.6% higher a year, maybe stronger." The global markets are there, he noted. For example, in 1980 there were six countries producing LNG and six countries importing LNG. Today there are 18 LNG producing countries and 23 importing countries.
The United States built 17 Bcf of regasification capacity over a five-year period in anticipation of LNG imports, Hattenberger noted. All of the terminals are running today at minimum rates, but obviously that wasn't the plan. The projects now on the table to export gas to higher-priced gas markets "may be the next game changer."
With an estimated $11 spread between Henry Hub gas prices and Japan's gas markets, "there's a gigantic spread for LNG prices," the GM&T executive noted. "And high-priced LNG is looking for more gas."
BG Group's agreement in late October to buy LNG for export from Cheniere Energy Partners LP's Sabine Pass Liquefaction LLC "is a watershed moment for LNG," said Hattenberger. The agreement is the first sales contract for Cheniere's Gulf Coast liquefaction project -- originally an import terminal -- and the first for LNG export from the Lower 48 states (see Shale Daily, Oct. 27).
The reservation charge to be paid to Cheniere is worth $8.2 billion over the 20-year life of the contract. Based on the current $11 spread, "BG will make $11.5 billion a year on the spread," said Hattenberger. "Unless we see a decline in shale production or lower oil prices, the gap will stay there."
Globally, "there's no set price for gas and in my opinion it will stay that way," he said. In the Far East, the global gas index is priced to oil while in the United States, it's priced at the Henry Hub and in the United Kingdom it's the National Balancing Point. "Europe is in transition...There is a dichotomy of market prices," which in turn will keep gas prices diverging worldwide.
Based on LNG export terminals opening between 2016 and 2020, North American gas exports could be as much as 6.7 Bcf/d by 2020, according to a Gazprom forecast. Gazprom is forecasting that around 5 Bcf/d of LNG will be exported by 2020, which would be about 2% of North American gas, Hattenberger said. By 2020 Gazprom's minimum scenario is forecasting gas exports to hit 2.2 Bcf/d while maximum exports could hit 6.7 Bcf/d.
Exporting 5 Bcf/d of North American gas isn't likely to have much of an impact on domestic prices, said the GM&T executive.
"Shale gas is everywhere; there are gigantic reserves wherever there is conventional gas," said Hattenberger. "But will we see the same kind of impact elsewhere as in the United States? I don't know but I think the answer is no," because of environmental concerns, political pressure and a lack of infrastructure. Domestic gas prices may rise "gradually" as hedges roll off and some rigs are laid down. However, "there's a lot of joint venture money coming to subsidize drilling. Unless there's a big change, I think gas prices won't get above $5."