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Bubbling over?

Hydrocarbon Engineering,


The full version of this article can be read in the May 2011 edition of Hydrocarbon Engineering.

After the historic recession in 2009, last year saw a remarkable turnaround in natural gas activity worldwide, with record growth in industrial output and trade. Increased economic activity, together with harsh winters and competitive gas prices, are driving this accelerated expansion of gas markets. Global natural gas demand is set to continue to grow rapidly in the next few years, driven by consumption in developing countries and by electricity generation needs in OECD markets, which have been exacerbated by the recent nuclear crisis. These developments will add pressure to an already tightening LNG market.

However, the rapid recovery in gas consumption observed in OECD countries over the first half of 2010 was followed by a slowdown in industrial activity, particularly in Europe, where the weaker increase in consumption over the second half of the year could largely be explained by the cold weather.

The US and shale gas

Continued expansion of unconventional supplies allowed the US to record the world’s second largest increase in production (in terms of volume) after Russia. According to the US government, American gas production rose tremendously in 2010, increasing by 4.8% despite a 7.5% fall in the Gulf of Mexico. The sustained growth in US production throughout 2010 can be attributed to the development of shale gas, the production of which looks set to have risen by more than 15% across the whole year. Shale gas production is becoming an increasingly important source and currently represents almost 20% of US dry gas production.

However, ongoing low prices in the US (an average of US$ 4 /million Btu since March 2010) have dramatically reduced the financial interest that companies have in increasing their production of shale gas, with most basins requiring breakeven prices of approximately US$ 5 /million Btu in order to guarantee a return on investment of at least 10%. The significant increase in shale production seen in US in 2010 can be attributed to various factors, some of which go beyond the goal of immediate profitability.

International trade

Although the strong growth in production in many countries enabled domestic requirements to be met (as in the case of the US, Iran, China, India), it was also sometimes further boosted by the export needs of many consumer countries in Europe, Asia and America. The result was that international trade in natural gas by gas pipelines and LNG carriers experienced sustained growth, which looks set to post annual growth of more than 10% in 2010 having fallen considerably in 2009.

Expansion of LNG worldwide

The LNG industry is currently experiencing very rapid growth under the impetus of emerging and developing countries. Global liquefaction capacity increased from 331 billion m3/year in December 2009 to 364 billion m3/year in December 2010. This increase in available LNG supply has stemmed from the successive commissioning of two additional liquefaction trains in Qatar (RasGas Train 7 in February 2010 and Qatargas III Train 6 in October 2010). Additionally, a second train was inaugurated at the Yemen LNG plant in April 2010 and the first liquefaction plant in South America, the Pampa Melchorita unit in Peru, was also commissioned.

Over the next five years, 10 new liquefaction trains currently under construction will be brought into service. These should provide an extra 64 billion m3 of capacity, bringing global liquefaction capacity up to 426 billion m3/y by the end of 2015.

The gas bubble bursts

Over the next two years, economic uncertainty is expected to result in slower growth for the gas industry than was experienced in 2010. According to Cedigaz, world demand for natural gas could continue to increase at a sustained rate of approximately 2.5 - 3% /y between now and 2013, boosted by the buoyancy of emerging and developing markets, as well as by the electricity generation needs and competitive prices in industrialised countries, all of which encourage the use of natural gas. Indeed, the prices of coal and petroleum based products could remain under pressure in the short term, due in particular to China’s needs.

As far as available supply is concerned, Cedigaz’s estimates, which are partly based on projects in the process of being developed and implemented, indicate that global production capacity will rise to more than 3370 billion m3 in 2012, a figure approximately 13% greater than capacity in 2009 and 10% greater than in 2008. These developments suggest that the global gas supply will continue to exceed demand in the short term. However, the gap between supply and demand may soon rapidly tighten.

The full version of this article can be read in the May 2011 edition of Hydrocarbon Engineering.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/27042011/recent_developments_and_trends_in_natural_gas_markets/


 

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