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Gas: The Fuel of Choice, Increasingly in Liquefied Form
Global liquefied natural gas (LNG) supplies are tight and expected to remain so for a while as liquefaction projects in progress wrestle with delays and those being planned face an environment of escalating costs. However, there’s plenty of gas to liquefy in Australia, the United States (thank you, shales) and elsewhere. And there’s growing demand as gas is becoming the “fuel of choice” around the world.
“The future looks bright for our industry,” ExxonMobil Corp.’s Richard Guerrant, vice president for LNG, said Tuesday at the LNG 17 conference in Houston. “As we move forward, it is important that our industry work together to ensure LNG markets and supplies remain viable, and our industry maintains its reputation for reliability and excellence.”
RasGas Company Ltd. CEO Hamad Rashid Al Mohannadi was one of Guerrant’s co-panelists at the event and reflected on how far leading global LNG supplier Qatar has come in the last decade. In 2003, RasGas was in “full construction mode” and Qatar was producing about 16 million tonnes per year of LNG for export, he said. There were very few importing countries, and very little spot trading was taking place.
Now, he said, Qatar is part of a “far more dynamic” industry. The country has reached its goal of putting 77 million tonnes per year of LNG into the global market and is moving forward with other projects overseas (see Daily GPI, April 16; Jan. 15). Twenty-eight countries are importing LNG “with many more on the horizon,” the RasGas chief said.
Of course, the fortunes of LNG are dictated by those of natural gas, and it is becoming the “fuel of choice” around the world, the one that most economies go to first to meet their needs, Chevron Gas and Midstream President Joseph Geagea told the audience. The greatest challenge for the LNG sector is bringing buyers and sellers together in a free market and regulatory environment that is conducive to growing the supply needed to meet demand, he said.
It would be a mistake to believe that “all the LNG will come from the United States” or for that matter from Australia or Qatar, Geagea said. Diverse supply points are needed, and where LNG exports are viable, they should not be scared out of coming into the market. Geagea encouraged LNG consumers to diversify their portfolios and take equity positions in the upstream gas exploration and production industry, as some have done. If they do, they’ll learn first hand about the challenges facing gas producers in different parts of the world, he said. “It’s only from a partnership between buyers and sellers that we can serve this market.”
The perspectives of LNG consumers were also represented on the panel. Petrobras’ Jose Alcides Santoro Martins, chief gas and energy officer of the Brazilian producer, was not shy about articulating what LNG consumers most want: supply security, flexibility and competitive pricing.
And when it comes to pricing, Tokyo Gas is looking forward to the entry into the global market of shale gas-backed U.S. LNG. Shigeru Muraki, Tokyo Gas representative director, said U.S. LNG will make a “significant impact” on pricing and liquidity in the Asian LNG market. It will be a driving force to enhance competitiveness and develop trading opportunities and an Asian LNG hub, he said.
Just weeks ago, Tokyo Gas joined Tokyo Electric Power Co. (TEPCO) in linking the price of some of its LNG to prices at the Henry Hub (see Daily GPI, April 3). Last February, TEPCO struck its first-ever Henry-linked LNG contract (see Daily GPI, Feb. 8). Alaska has been exporting LNG to Japan on a small scale for decades, and the Tokyo Gas executive said the northernmost U.S. state has a lot more gas to offer from its North Slope.
Japan recently announced plans to develop an LNG futures market on the Tokyo Stock Exchange within two years (see Daily GPI, April 2). Shigeru said that is putting the cart before the liquidity horse and the futures market, if established, will not function well in an environment of limited trading opportunities. “I think it will take some more time,” he said during a separate panel discussion at the conference on Wednesday.
But Japan expects LNG prices to be competitive, Shigeru said. If LNG prices remain high, coal will scoop up market share in the power sector, particularly for baseload generation. But if natural gas is competitive, demand for LNG will grow and pipeline gas from Russia will offer a complementary supply, he said.
Keeping global LNG prices competitive is not an easy task, though, Guerrant said. ExxonMobil and other companies all have their ways of bending the cost curve, he said. “We’re striving to stem the increase [in LNG development costs] so that we can remain competitive and come up with a project that can deliver a price to a customer that keeps him competitive and meets our needs for a reasonable return. And that is a challenge in this environment.”
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