LNG’s Worst Nightmare
“Shale Gas” was written in huge, red letters.
Speaking on the topic of “Market shifts and the impact on LNG” at the European Gas Conference in Vienna, Austria, Niall Trimble, Managing Director of the Energy Contract Company Ltd, said that shale gas might be the cause of the LNG industry’s worst nightmares, as the “shale gas revolution” in the US had slowed down LNG shipments of natural gas to America to a trickle.
“As recently as 2008 things looked completely different,” he recalled, showing a graph of the growth of LNG imports in 2007. Back then, the US, said Mr. Trimble, was expected to be the largest LNG importer.
According to the US Energy Information Administration, by 2035 shale gas output in the US was expected to make up something like 46% of natural gas production, at 742 bcm/year.
The impact of this in the future, he said, was somewhat erratic, given the extremely low Henry Hub natural gas price. In terms of world gas resources, it all depended what technically might be available.
World shale gas resources, said Trimble, were potentially significant, but still very uncertain, with resources running at 189,000 bcm.
“China is forecast to produce 25% of all the growth: 36,000 bcm, more than US, so potentially shale gas resource is great worldwide, not just in the US.”
He noted that it was largely un drilled outside US
The UK, he said, still expected to import 20-25 mm tons/annum of LNG by 2020, but given shale gas, and its recent discovery in Lancashire, things could change.
Cuadrilla Resources, he said, were optimistic.
“We think it’s potentially very significant indeed. It’s possible the UK might not be an importer of LNG in 2020,” he added.
And, Trimble noted Chinese Sinopec’s investment with Devon Energy: “They’re there to learn about shale gas and develop it in their own country.”
On to LNG pricing. In terms of LNG Spot Cargos into Japan, he said that prices had not reached the expected levels for August through February. He explained that term contract prices were very depressed in 2009-11, but had received a big boost from the Fukushima disasters and the increased demand for LNG.
“The market is much tighter than a year ago, due to the short term Fukushima effect,” he explained. “There’s not likely to be shortages of LNG in the future, but lots of projects, and good potential for shale gas.
“In the next 20 years the oil market is going to remain relatively tight, but I don’t think that’s the case for natural gas; in 10-15 years’ time the oil-gas price link is likely to be broken,” opined Trimble, who said the LNG market had been distorted by Fukushima in March 2011, that the nuclear industry there was largely shut down and Japan had increased reliance upon gas-fired power generation.
Most LNG, he said was on long-term contract: 80%. “Japan’s increase was around 25-35% of short-term trade. Perhaps not something to bank on.
“Most nuclear power is still available,” he said. “Indications are that 61% of nuclear could be back on this summer. That would probably tend to reduce natural gas by 14-15 bcm/year. We’re likely to see some moderation in spot prices.”
He noted that there was a lot of new plant construction for LNG liquefaction plants under construction.
“There are also lots of things planned, some a gleam in someone’s eye,” said Mr. Trimble. “We’ve identified 94 projects with capacity of 276 mm tons/annum. The market outlook generally shows a fairly comfortable market position.”
He asked: “Are countries moving away from nuclear power, as in Germany’s decision to end its use by 2022? Once Japanese issues are resolved, LNG will be in a good position.”