With the first phase of the liquefied natural gas (LNG) global infrastructure buildout well under way, LNG will one day be a global commodity whose price is subject to multiple factors, the vagaries of international politics among them. Now and in the future, U.S.-based gas players might do well to remember one thing in particular:

“The rest of the world doesn’t care what the U.S. gas price is, and they don’t know either,” said Theo H. Walthie, Dow Chemical group president for hydrocarbons and energy. Walthie was one of several speakers addressing the topic of a global natural gas market at Cambridge Energy Research Associates’ (CERA) CERAWeek in Houston Wednesday.

Representing an industry that both burns gas for energy and consumes it as a feedstock, Walthie said he would like the gas industry to grow supplies, as well as expand markets for LNG and connect the Atlantic and Pacific basins and the Middle East.

That’s all starting to happen. CERA’s Michael Stoppard, senior director for global LNG, predicted a 60% increase in global LNG capacity over the next four years. He noted that in 2004 CERA predicted a doubling in the size of the LNG market over the next eight years. “That forecast is on track and the main reason is Qatar,” he said. The United States accounts for about 8% of the world LNG market currently. By 2012 the United States will surpass Japan as an importer of LNG, growing its global market share to 24%, Stoppard predicted.

While acknowledging that LNG infrastructure has shown up more quickly than the natural gas to fill it, Stoppard said he and CERA believe there will be ample supplies to meet U.S. LNG needs. Along the way, though, things will likely get bumpy as new supplies come on in a lumpy fashion and markets — whose attributes are not necessarily complementary — continue to develop.

“The competition for this supply is intense,” Stoppard said, noting that recently Asian markets — Japan and Korea — have been locking up supply under new long-term contracts. As the world turns away from LNG breadbasket Qatar to seek supplies elsewhere — from Australia and Nigeria, for instance — the transition will invite uncertainty into the market.

Depending on one’s point of view and political temperament, supply uncertainty, or at least the concept of it, is very much with the industry today. Also speaking on CERA’s gas market panel was Andrei Reus, deputy minister of industry and energy for the Russian Federation. Given all the talk in the trade and secular press about the potential for a natural gas cartel, led in part by Russia, Reus used his turn at the podium to try to dispel fears of an OPEC-style cartel controlling gas prices.

After noting that Russia in January settled its natural gas dispute with Belarus and finalized market rules with countries consuming its gas, Reus despaired that his country is seen as a threat to open energy markets.

“Unfortunately, the measures we undertake are not always properly interpreted,” he said through an interpreter. “Moreover, while our dialogues with business and government representatives yield productive results, the western mass media are always suffering from an old disease called ‘Russophobia.'”

Reus alluded to a speech earlier in the day by U.S. Energy Secretary Samuel Bodman (see related stories) and noted that he had heard nothing in Bodman’s remarks to reflect the fears of a gas cartel he’s read about in press reports.

However, Bodman’s speech did note “increasing instances of manipulation of hydrocarbons in countries with large resource bases, including…Engaging in discussions about new collective efforts to control energy supplies…”

Reus said he and his countrymen understand that is necessary “to promote transparency in the energy sector” in order to overcome suspicions. “…[W]e are ready to provide all possible information concerning the development of the Russian gas sector,” he said.

Reus was later peppered with questions from reporters about talk of a gas cartel coming from Russian President Vladimir Putin. “I wouldn’t emphasize the word ‘cartel,'” he said, adding later, “The U.S. market is something that we find extremely interesting.” Indeed, Russia’s Gazprom has said it plans to use future LNG exports to underpin a U.S. gas marketing presence (see Daily GPI, Aug. 21, 2006). And then it has said all of the natural gas to come from its huge Shtokman field would go to Europe, not the United States (see Daily GPI, Oct. 10, 2006).

As the global LNG marketplace develops, it might serve Russia’s interests best to view European and U.S. markets as complementary elements of a global marketing portfolio.

For instance, unlike most of the rest of Europe, Spain and the United Kingdom suffer from a lack of gas storage capacity, causing their gas markets to swing on LNG supply, noted Walthie. Unlike in the United States, pipelines in Europe tend to have more excess capacity, creating greater flexibility in European markets. And in the United States there is abundant gas storage compared to Europe, and more projects are in development to take advantage of LNG imports and summer-winter arbitrage.

The fact that U.S. and UK markets are spot-oriented could be a problem in the near term, acknowledged Woodside Energy Ltd. CEO Don Voelte, but longer term probably not. “Is LNG going to turn into a global commodity market? The answer is ultimately ‘yes,'” he said. “The successful companies don’t just liquefy gas, they have the throw weight to get it into the market.”

Walthie would seem to be counting on such robust players in a fungible global market for gas. His company, Dow, is a partner in Freeport LNG Development LP on Quintana Island, TX (see Daily GPI, June 20, 2006), a terminal that does not have LNG supply contracts in place. Walthie said he’s not worried. When LNG isn’t available in the global market there is always domestic gas from the pipeline network. As for LNG, the U.S. could very well be a buyer of LNG in the summer “when nobody else wants it,” he said.

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