LNG glut to end by 2013, says Deputy Premier

 Tuesday, 02 November 2010 01:57

SINGAPORE: Qatar, the top exporter of liquefied natural gas (LNG), expects a glut of the fuel to end in three years, putting it at odds with the energy watchdog to major consumers which says the oversupply could last a decade.

The Deputy Premier and Minister of Oil and Industry
H E Abdullah bin Hamad Al Attiyah said yetsserday the Gulf producer is on track to reach a targeted capacity of 77 million tonnes per year (tpy) by December 30.

The new capacity comes online as the world struggles to absorb new supplies with many economies still in recovery mode, while the International Energy Agency (IEA) had said spare capacity could hit 200 billion cubic metres a year in 2015 from around 60 billion cubic metres now.

“We are at the end of completion of the last two LNG trains,” Attiyah said on the sidelines of the Singapore Energy Summit.

Gas prices slumped worldwide in late 2008, as recession damped industrial fuel consumption in Europe and new technology slashed production costs for alternative supplies in North America, just as new LNG plants built to supply the United States neared completion.

Demand in Asia rose sharply in early 2010 and the IEA also expects global consumption to rise by up to two percent this year, after falling by an estimated three percent in 2009, offering some relief to gas sellers.

“Today we are seeing some glut in the market, but I’m confident that in more than three years, we will see the gas balance again,” Attiyah said.

Strong demand growth in India and China could absorb most of the production, he said, adding Qatar will send an additional 7 million tonnes of LNG a year to China and another 5 million to India.

Royal Dutch Shell is also confident about demand.

“If you look at the potential demand from China and India it’s huge, China could treble LNG demand from 2010 to 2020, and double it again by 2030,” said Malcolm Brinded, executive director at Shell Upstream International said.

He said LNG is the cheapest way Asian countries can meet their CO2 targets, adding he also sees demand ramping up from Singapore, Vietnam, Malaysia and Indonesia.

China’s LNG imports are set to surge this decade to reach 46 million tonnes by 2020, but rising domestic gas output will probably dampen its import appetite after that, consultant Wood Mackenzie said in July.

Attiyah said he was confident conventional gas would stay relevant in markets, even in the United States, where unconventional shale gas supplies are increasing.

“We’re seeing new markets there. New customers there. Customers even if you talked about five years ago no one would believe you,” he said, referring to North and Latin America, where Qatar has sealed new contracts with Canada and Chile.

But Attiyah conceded that suppliers still face difficulties.

“Today LNG and the whole of natural gas has some challenges,” he said. “It’s a tough market now.”

This was underscored by Nobuo Tanaka, executive director of the IEA, adviser to 28 industrialised economies on energy policy, who told reporters at the conference:

“If we assume the current level, the gas glut may go on for as long as 10 years, but there is uncertainty about how strong demand will be from China, so it could be much shorter.”

Tanaka said in May gas market fundamentals had changed as the U.S. developed unconventional reserves and the economic downturn cut demand, with the large volume of new supply reducing its import needs and depressing global gas markets.

Despite low gas prices, interest has been rising in underground shale formations that could hold enough natural gas to sate U.S. demand for a decade. The sector has lured a slew of investments by energy firms including from China and India.

Attiyah said that with shale gas becoming a challenge in the US, Qatar was in talks with additional customers across North and South America, as well in the Middle East.

“We are discussing with other potential consumers in the Gulf, Canada, Argentina and Chile,” he added.

He also said the US re-export LNG will not be competitive as the cost of the gas plus gasification and transport works out to almost $10 per million British thermal units (mmBtu). In contrast, spot LNG in Asia for early-December delivery was around $9.50 per mmBtu.

Asked about competition from Australia, which is also becoming a major LNG supplier, Attiyah said: “We’re not going to dominate the supplies. We understand consumers would like to see more suppliers to create oil security.

But going forward, Qatar will, today, be the main supplier to the world.”

Britain’s BG Group said on Sunday it had given final approval to a $15bn project to develop a major LNG project in northeastern Australia, coming after the Australian government gave environmental approvals to coal seam gas projects led by BG and Santos last month.

Australia will almost double LNG capacity by 2014-15, with A$200bn ($197.6bn) of proposed export projects in the pipeline.

And Shell, which has a half stake in the Arrow LNG project in Australia, and owns 30 percent of the 7.8 million tonne-per-year Qatargas 4 train 7, will also see “very substantial” investment in Australia in the “tens of billions of dollars” throughout the decade, Brinded said.

New energy resources such as unconventional gas and nuclear power may help to meet growing demand globally and to prepare for higher energy costs, Singapore Prime Minister Lee Hsien Loong told the gathering.

To fast-track development of new resources, the world’s No. 2 energy consumer China, will hold its first auction for six shale gas exploration blocks early this month for domestic firms.

Shell expected to start drilling end this year or early 2011 in two shale gas blocks agreed upon earlier — Jinqiu and Fushun — in southwestern China’s Sichuan province, said Marc Gerrits, vice president for Shell Exploration Asia.

Shell already produces three billion cu m a year of gas from a tight gas block at Changbei in a joint venture with China National Petroleum Corp, parent of PetroChina.