IEA forecasts global gas demand will grow 50% by 2040

(Bloomberg; Nov. 9) - China and the Middle East, spurred by lower prices and ample supply, will drive global natural gas demand growth in the next 25 years as consumption in Europe fails to recover to peak levels seen in 2010, according to the International Energy Agency. Both regions will become larger users than Europe by 2035, the Paris-based IEA said in its World Energy Outlook 2015. Global demand for gas will rise 1.4 percent a year to 182 trillion cubic feet in 2040, up 50 percent from 120 tcf in 2014.

“With gas prices already low in North America, and dragged lower elsewhere by ample supply and contractual linkages to oil prices, there is plenty of competitively priced gas seeking buyers in the early part of the Outlook,” the IEA said. Gas will account for 24 percent of power generation by 2040, up from 21 percent in 2013, as the share of dirtier coal falls to 30 percent from 41 percent.

Lower prices “seem set to boost gas demand in major importing regions, reinforcing our view that natural gas is a fuel well placed to expand its role in the global energy mix,” the IEA said. China’s consumption is expected to rise 4.7 percent annually, the fastest growth among all regions, to 20.9 tcf a year by 2040, the report shows. The Middle East will expand gas use by 2.1 percent a year to 26 tcf. In the United States, natural gas will displace coal as the largest source of power generation by the mid-2020s, the IEA said.

Read more: Oil and gas news briefs Nov. 12, 2015

Delayed, over budget, Gorgon LNG expected to start up 2016

(Bloomberg; Nov. 5) - Next year, on a remote island off Australia’s western coast, the world’s most expensive liquefied natural gas export terminal will start shipping cargoes into a market that has changed a lot since 2009, when the project was approved. The Chevron-led $54 billion Gorgon LNG facility, initially budgeted at $31 billion, was supposed to have begun operations in 2014. Labor disputes have delayed it, and lower LNG prices have potentially reduced its profitability.

Producers no longer have the bargaining power they once did. Weakening demand in Asia combined with a jump in supply is giving buyers not only cheaper gas but more say on how contracts are designed. “The buyers have the upper hand,” said Neil Beveridge, an analyst at Sanford C. Bernstein. Suppliers historically have been able to lock customers into 20-year contracts, with clauses that restrict the resale of gas. In Japan, two of the largest utilities have teamed up to gain leverage and demand more flexibility — they will no longer sign contracts that give producers control over LNG destinations.

If buyers succeed in negotiating better terms, the LNG market could become more like oil, where producers, suppliers and traders compete for profits through constant buying and selling. That would require a fully functioning spot market, where LNG is traded for immediate delivery, a development that’s still a decade away, Beveridge said. Gorgon will join three other LNG megaprojects recently completed along Australia’s eastern coast. In the U.S., five LNG projects under construction will export cheap natural gas unlocked by the shale boom. The first will begin exports in 2016.

Read more: Oil and gas news briefs Nov. 9, 2015

LNG prices in Europe likely to drop even lower, financial adviser says

(Bloomberg; Nov. 2) - European natural gas prices, already at their lowest since 2009, will drop further over the next five years as fuel delivered by tanker from the U.S. will add to record Russian and Norwegian supplies, Societe Generale said. Front-month gas on the National Balancing Point hub in the U.K., Europe’s biggest market, will decline more than previously expected every year through 2020, the bank said in an e-mailed report Nov. 2, cutting its forecast for 2016 prices by 9.1 percent.

Europe will remain a dumping ground for excess liquefied natural gas, while demand will be subdued, the bank said. “With Brent still below $50 a barrel, record pipe gas supply coming from Norway and Russia and more to come thanks to LNG, high storage levels, above-seasonal temperatures and little demand growth, we have revised down our forecast,” Thierry Bros, European gas and LNG analyst at Societe Generale in Paris, said in the note.

LNG tankers are heading to Europe because the continent’s trading hubs can absorb supply not needed in Asia, the biggest market for the fuel. Europe’s LNG imports will likely increase in the next five years after a 23 percent jump this year through October. The gas contract for next-month delivery will likely trade at $6.70 per million Btu this year, Societe Generale said, adding the 2016 price could be 10 percent lower.

Read more: Oil and gas news briefs Nov. 5, 2015

Global LNG oversupply leads to more spot sales and trading

(Reuters; Oct. 30) - Producers and importers of liquefied natural gas are preparing to trade the fuel more actively on a spot basis as a looming supply surplus threatens to overwhelm decades-old contracts and push prices lower. With 130 million metric tons of additional LNG capacity in Australia and North America by 2020, producers and traditional buyers such as Japanese utilities have expanded trading teams to handle excess cargo flows and navigate a more open market.

Excess supply, along with rising demand, is key to establishing a liquid commodity market, as opposed to times of tight conditions when producers and consumers tend to enter long-term fixed supply agreements rather than trade openly. "Buyers will be able to have their choice ... (of) very large supply sources that can deliver pretty much at a moment's notice," Cheniere Energy CEO Charif Souki said this week at a conference in Singapore. Cheniere is set to start up its LNG plant at Sabine Pass, La., in January.

And while new demand is popping up in countries such as Jordan, Dubai, Egypt and Pakistan, it is unlikely to be enough to offset the slower-than-expected consumption growth in China and the falling demand in top importers Japan and South Korea. Some major players in the industry disagree, though, on how quickly a robust spot market will develop. The surplus, along with slow-growth demand, will keep prices under pressure until the end of the decade, consultancy Wood Mackenzie said in statement this week.

Read more: Oil and gas news briefs Nov. 2, 2015

Wood Mackenzie expects LNG prices to remain low all decade

(Houston Chronicle; Oct. 27) - A looming glut of liquefied natural gas is set to force down local spot prices for the fuel, according to global energy consulting group Wood Mackenzie. About 130 million tons per year of new LNG supply is set to come online over the next five years. At the same time, the global economy has slowed and China — a major source of demand for the fuel — has seen its economy falter.

The additional supply and weakening demand could spark a downturn in LNG prices similar to 2008-2010, when Qatar added 50 million tons per year of new capacity while markets sputtered. “The LNG market is facing another oversupply which is likely to be deeper and persist for some years,” said Noel Tomnay, head of gas and LNG research at Wood Mackenzie, in a study released Oct. 27. “Prices in Asia will be … at their lowest between 2017-2019, while prices in Europe will not reach a low point until 2020.”

China’s economy will be a wildcard throughout this period, according to Wood Mackenzie. If the country’s regulators allow in more liquefied gas, the demand could lessen the glut. In addition, the price of coal will be a factor in determining how much LNG is needed across Asia and Europe. Higher coal prices would encourage power generators to switch to run on gas, while lower prices would allow them to run on coal.

Read more: Oil and gas news briefs Oct. 29, 2015

Alberta faces $6.5 billion budget deficit due to low oil prices

(Calgary Herald; Oct. 24) - The collapse of crude oil prices that led the government to warn Albertans last spring to brace for a multibillion-dollar hole in provincial revenues will result in the recently victorious New Democratic Party introducing a budget update Oct. 27 that forecasts the largest-ever deficit in the province’s history. The Finance Minister hinted this week the deficit will be just shy of $6.5 billion — nearly $1.5 billion more than the March forecast. Resource revenue was projected to fall from $8.9 billion to $3.6 billion this year and income tax revenue was expected to drop with it.

It’s a gigantic hole — and analysts say there aren’t any palatable solutions in sight. The Parkland Institute, a University of Alberta public policy think-tank, didn’t mince words in a report this week. “The implications of this unattractive fiscal situation are obvious,” noted author Melville McMillan, professor emeritus and fellow of the University of Alberta’s Institute for Public Economics. “Albertans will be faced with significant cuts to provincial public services or they will face higher taxes.”

Alberta’s fiscal situation is “very dire,” said University of Calgary economist Ron Kneebone. “There’s very little prospect for oil prices to dramatically increase over the near term, which means the government has got this huge fiscal hole in their budget that is not going to be filled anytime soon.” Kneebone suggested the new government “start filling it with some combination of tax increases and spending cuts,” although no one is expecting large tax increases or huge program cuts to be unveiled this week. Alberta’s budget year runs April 1 to March 31.

Read more: Oil and gas news briefs Oct. 26, 2015

Yamal LNG financing stalls over sanctions, loan terms

(Reuters; Oct. 19) - Efforts to secure financing for Russia's Yamal LNG project have stalled, with the owners baulking at costly Chinese loans and Western sanctions hampering alternatives, two Russian banking sources said, warning the search could drag into next year. The quest to bankroll the $27 billion project ahead of a planned 2017 launch is seen as a test of Russia's ability to secure foreign loans at a time when its access to capital markets is limited by sanctions over its involvement in Ukraine.

The lead Russian company in the project — Novatek, Russia's largest private gas producer — is under U.S. sanctions, making it harder to find cash for the Arctic project. Novatek has a 50.1 percent stake in what will be Russia's second LNG plant. France's Total and China National Petroleum Corp. hold 20 percent each. Last month, Novatek agreed to sell a 9.9 percent stake to the China Silk Road Fund.

Novatek had expected to raise up to $20 billion from Chinese banks, with the first funds expected by the end of 2014. But two Russian sources, who declined to be named, said they saw little movement on a deal. One of the sources said Yamal LNG was not happy with earlier offers from the banks and had been forced to relaunch the bidding process. "Chinese money is expensive, so Novatek and Total would like European banks to take on the larger share of financing, which is complicated by sanctions," the source said. "The delay … also raises concerns about the project's timing and possible increased equity investment in the project," Goldman Sachs said in a research note Oct. 19.

Read more: Oil and gas news briefs Oct. 22, 2015

Costs must come down for B.C. projects, developer says

(Bloomberg; Oct. 15) - The cost for Canadian shipments of liquefied natural gas must drop by almost a third for projects to succeed as a supply glut makes LNG a buyers’ market, according to Woodside Petroleum CEO Peter Coleman. Asian buyers can afford to pay a maximum of $10 to $11 per million Btu for long-termdeliveries of the fuel, Coleman told reporters Oct. 15 after speaking at an LNG conference in Vancouver.

The Australian producer is backing an export proposal in B.C. led by Chevron, after acquiring a stake from Apache last year. “It’s a difficult time to be in the marketplace for LNG,” Coleman said. “That means cost structures need to come down by anywhere between 25 and 30 percent.” The 20 LNG projects proposed for British Columbia are vying with supplies from Australia and the U.S., as Asian demand slows and the oil slump lowers LNG prices. None of the Canadian ventures have started construction.

The Canadian projects will be challenged to maintain momentum the longer the oil price rout lasts, Coleman said. The Chevron-Woodside venture, known as Kitimat LNG, is currently assessing the gas supply source required and continues to talk to potential customers, after completing design work on a proposed pipeline and terminal, Coleman said. “Before we get to a final investment decision, we need to have each of those elements understood,” he said.

Read more: Oil and gas news briefs Oct. 19, 2015