Global demand for LNG and gas recovering

Addressing the Australian Journal of Mining’s 9th Annual Coal Seam Gas & LNG Conference in Brisbane on December 1st, Harris said that long-term contract supply to China could reach up to 20 million tonnes in the next few years.
He said if you include all contracts under negotiation for projects not yet committed, China has more than 30 million tonnes of LNG potential by around 2016-7.
Overall, there will be a dip in demand from Asia this year, although it remains the biggest import market for LNG globally, with demand picking up from 2010 to 2012.
“Much of that increase in demand is probably pre-determined to the extent that it reflects long-term supply contracts from new projects which are coming online,” said Harris.
What we have currently in the LNG market globally is a surplus of gas and LNG and there are three things which have led to this effective over-supply situation according to Harris.
The first is the economic slowdown which has led to a decrease in the amount of LNG being imported into countries such as Korea and Japan this year.
“There’s also what we term an unconventional gas revolution in North America. This isn’t a CSG (coal seam gas) revolution, it’s based around shale gas,” said Harris.
He explained that in the last 18 to 36 months, with the culmination of technological advances and more rapid drilling of wells, the production of shale gas has been boosted in the United States.
“…it means that the United States doesn’t really need to import LNG in the way that had been expected it would need to, to top up its balance,” said Harris.
The third factor contributing to over-supply is what Harris referred to as a “LNG supply surge”. This has come about through new liquefaction projects starting to ramp up.
“There was a delay in the commissioning of some projects and others had technical problems but what we currently have are these three things which are contributing to the over-supply,” said Harris.
So what does this short-term supply push mean in terms of the longer term outlook?
“The shale gas in America does change the equation,” said Harris, “if you look out to 2020 people were expecting in LNG terms maybe three years ago 100 million tonnes of imports would be needed.
“In reality you probably don’t need any LNG to go to the US in 2020 although in reality some still will.
“It also changes the equation because shale gas is relatively low cost…so it effectively sets a new lower long-run marginal cost of supply.”
Harris said there will probably be a shift in the long-term outlook, maybe a shift away from some of the market tightness seen in the last couple of years to a “slightly more relaxed outlook going forward”.
He said that in the context of carbon emissions reduction efforts, principally post-2020, it may not necessarily be “good for gas”.
“Most long-term outlooks for the energy sector would probably not really have gas increasing its total share of energy demand and one of the reasons for that is primarily that much of the growth in energy demand is going to be in Asia and a lot of that is going to come in the form of coal for power generation.
“But as a bridging fuel gas is definitely going to have a significant role to play for at least the next decade, so there is an upside option for gas,” he said.