Abstract
Abstract By far, the most important recent development in the state of international liquefied natural gas (LNG) trade has been the collapse of natural gas prices following the economic crisis of 2008. Prices for LNG have dropped from over ﹩12/MMBtu to less than ﹩8/MMBtu in the traditional markets of Asia and as low as ﹩4/MMBtu in the United States. This situation has been discouraging new LNG developments. As many studies have suggested1, the only way for LNG to thrive is for prices to be at least ﹩6, perhaps even ﹩8. Countries, such as Qatar that have already developed LNG and own gas and LNG facilities, can take a large market share, even at ﹩4. Others will not be able to do so. This situation will continue until the excess capacity that flooded the market after the economic crisis, estimated by us to be at least 10 billion cubic feet per day (Bcf/d), is eliminated. Complementary issues such as compressed natural gas (CNG) will also continue to suffer. There will be two competing influences in the near future that will be quantified in this paper:-China is poised to increase the natural gas share in its primary energy portfolio to more than 10 percent by 2020. Coupled with an overall increase in the energy demand, this may mean China quadrupling its natural gas consumption and becoming the main incremental market for LNG. Australia, among others, will reap the benefits.-Shale gas production in North America and potentially China, will likely affect worldwide LNG as the US has already cut back LNG imports. In the short term, under the influence of the rapidly advancing shale gas industry, it is possible that gas prices may drop further (e.g., ﹩3/MMBtu). However, LNG connectivity will eventually be a catalyst for much higher natural gas prices (e.g., ﹩8/MMBtu), unifying international prices. Introduction There is a significant imbalance between nations that own natural gas reserves and those that consume it. Russia and the United States are both major reserves holders (Figure 1, data source: BP Statistical Review of World Energy, 20112) as well as consumers, whereas China and Japan are major and emerging consumers, with very limited indigenous resources, and will have to import natural gas from other countries. Along with pipelines, LNG is one of the main methods of transporting natural gas. Therefore, to understand the international LNG prospects, it is necessary to investigate the global natural gas demand and the role of geopolitics first. For more than a decade natural gas has been on a continuous rollercoaster with very profound implications for the world energy mix. The United States, by far the most influential player in natural gas trade (China is still quite underdeveloped in this sector), has led practically every trend. Some of these trends were contradictory with the previous ones, reflecting both economic upheavals and, arguably, the most important transformation in decades: the evolution of shale gas, which at the time of this writing is still a uniquely North American phenomenon. According to some estimates3, shale gas has escalated to 25 percent of total US natural gas production.
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