Examining the situation from different angles, several speakers at Gastech’s opening commercial session said that they have high hopes for the long-term global gas market, once the current oversupply and low prices are overcome. Despite the short-term hiccoughs, “it’s an exciting time to be part of the global LNG industry,” noted moderator Roger Bounds, Global Head of LNG at Shell.
“We have more volume and more supply than ever before,” continued Bounds. “New markets are opening all the time, and we’re also seeing our buyers reaffirming the validity of long-term contracts. I’m very happy to speak on behalf of floating LNG and how they’re beginning to find their own stride.”
Referring to the keynote speech delivered by BG Chief Executive Officer Helge Lund, Wood Mackenzie’s Noel Tomnay provided some comic relief to the crowd by saying, “When folks are quoting Winston Churchill to you, you know things are really bad.” He noted that coal and carbon markets will influence potential floor prices for gas in Europe and Asia. “There is a real risk that prices in Europe over the next five years might dip below $5/MMbtu. Coal competition in Asia in the short term is not something that we had seriously considered before, but we might have to start.”
Tomnay also said that there will be a new focus on the cash cost of gas supply. “Delivered cash costs of indigenous Chinese gas and US LNG appear relatively high,” he explained. “In fact, US LNG cash costs to Europe might be anywhere from $4/MMbtu to $5/MMbtu.” In yet another factor affecting the global market, Tomnay said that Asian players will be more aware of the consequences of Russia’s strategy for gas sales into Europe.
Looking at some additional predictions, Tomnay said that the proportion of spot sales will be higher, with the concurrent growth in availability of supply and shipping. “The Asian LNG buyer will be more fragmented, with requirements for smaller volumes and more flexibility,” Tomnay said. “Control of supply will be more concentrated, driven by an appetite for cost reductions and portfolio growth.”
In one of the more insightful comments of the session, Tomnay noted that once Shell finishes its acquisition of BG Group, the transaction “will ensure that the top four suppliers in the world will have about the same share in 2020 as they do today.” […]
Looking at global trends that have influenced the gas market, Alaa Abu Jbara, COO, Commercial and Shipping, at Qatargas Operating Company Ltd., said four specific items have had the greatest impact. “These include slow Chinese growth, the sharp drop in oil prices, US Federal Reserve monetary policy, and emerging market challenges,” noted Jbara. “Global gas demand is still expected to grow in the coming years, but at a slower rate than expected.”
In the LNG sector of the overall gas market, Jbara said the market has been adjusting to several factors of its own, including global demand plateaus, emerging Middle East demand, emerging spot vs. long-term trade, and a situation of few new supply additions. In addition, “Global gas demand is being challenged by greater use of coal and renewables. However, significant new supply volumes will come from Australia and the US over the next few years.”
Jbara said that the long-term outlook at Qatargas remains positive. “After all, demand continues to grow,” explained Jbara. “Just look at population growth – the most recent baby is the 7-billionth person on the planet. By 2025, the Chinese economy could match that of the US.”
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