Recently published reports by industry analysts PFC Energy and Booz & Company provide clear evidence of major change in the global natural gas markets.
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Recently published reports by industry analysts PFC Energy and Booz & Company provide clear evidence of major change in the global natural gas markets. In the first instance, the PFC Energy report discusses the impact of unconventional natural gas resources, including shale gas, coal bed methane and tight gas on overall global reserves. The report contends that based on 1997 geological figures, which today are very likely underestimated, unconventional reserves total 3 250 000 billion ft3 in contrast to a mere 620 000 billion ft3 of conventional reserves. Once deemed largely inaccessible and prohibitively expensive to recover, the US is now demonstrating to the world that advances in technology have made these huge potential reserves extremely viable. Not only has the American Petroleum Institute estimated an increase in US natural gas supplies of from 90 years’ worth to 116 years, but there are clear environmental advantages in a more readily available supply of cleaner burning natural gas for power generation usage over carbon intensive coal. For Europe, which is yet to harness any of its extensive unconventional natural gas reserves, this could be an effective means of circumventing the region’s unhealthy reliance on Russia alone for the majority of its gas supply.
For all their promise, unconventional gas resources will continue to represent but a small percentage of global natural gas production for the foreseeable future. However, in the current global economic downturn, they are certainly contributing to the increasing global gas surplus identified by Booz & Company in their report entitled, ‘An unprecedented market: how the recession is changing global gas markets’, and therefore adding to the anxieties of leading gas exporters such as Qatar, Norway, Russia and Algeria. With gas demand having risen annually by an average of 4% between 1965 and 2007 and confidently predicted, pre-recession, to have continued at 2% per annum, Booz and Co’s report observes that, ‘demand destruction and new gas export developments already underway and coming onstream could combine to move the gas market into a position of oversupply of between 5 - 15%’. Global demand is being affected by a drop in output from energy intensive industries such as the steel, chemicals and car manufacturing. Whilst in the short term a surplus of natural gas would very likely put pressure on current pricing structures across the industry including the LNG sector, the longer term damage could cause a reluctance to finance future projects across the natural gas sector leading inevitably to future demand imbalances and price spikes. Booz & Co. identify a number of major projects which have already either been shelved or placed on hold in countries such as Iran, Nigeria, Russia and Australia.
In this context, news in Contributing Editor, David Hayes’ article commencing on page 12 of this issue that China is continuing to invest heavily in its petrochemical industry is indeed optimistic. Whilst industry analysts in many economies around the globe are tentatively observing green shoots, it would be naïve to believe that this recession is by any means over and there are no more further surprises around the corner. Nonetheless, the only market in which we can have any modicum of confidence is China and so the recent announcement by the World Bank that it has raised its forecast for Chinese GDP growth from 6.5% to 7.2% in 2009 and 7.7% in 2010 on the back of the government’s economic stimulus package has to be viewed in positive terms as we head into the second half of the year.