Global Gas Markets Enter New Phase: WPC
Global gas markets are entering a new and exciting phase of development, according to speakers at the World Petroleum Congress in Istanbul July 13, addressing a session on global gas market development entitled "Strategies for a New reality". At the moment it is a buyers' market, and that situation is likely to be prolonged with more capacity coming on stream, unless new demand, from sectors such as transport, can be developed quickly.
Speakers explained that recent developments are signalling both that markets are both in a process of change; and that the potential for growth is enormous.
Noting global efforts to reduce carbon emissions and the trend for development of renewables, the Secretary General of the Gas Exporting Countries Forum Seyed Mohammad Hossein Adeli pointed out that the recent sizeable reduction in CO2 emissions had come about not through renewables but largely because of the switch from coal to gas for power generation.
"Don't be misled by the fashionability of renewables, gas is more affordable and competitive, and offers reduced CO2," he said.
The potential role of gas in reducing global CO2 emissions was echoed by Woodside CEO Peter Coleman, who pointed out that their potential for interruption meant that renewables need to be partnered with another energy source. He also said the commitment by the International Maritime Organisation to limit sulphur content in bunkering fuel to 0.5% by 2020 and the potential reductions if the global shipping industry were to switch from marine diesel fuel to LNG.
"The total possible market for LNG for shipping is equal to the current total global market for LNG. If only 10% of shipping adopts gas as a fuel, this would cause huge changes to global gas markets," he said, adding that the market for gas for road transport offers equal potential for growth, pointing to India's decision to replace diesel buses with CNG powered vehicles.
New supplies, new pricing models
Commenting on the increasing volumes of uncontracted gas entering global markets and the recent decision by Qatar to increase its LNG production capacity from 2023, speakers pointed out that far from presenting a threat to global gas producers, it presented an opportunity to develop new pricing models to suit changing market conditions and the opportunity of securing new markets.
"As new supplies enter the market we'll see the development of trading platforms for LNG as for oil," said Coleman. "Pricing will have to be more flexible and will have to offer variety of pricing options such as hubs, consumer price indexing, commodity escalators, in order to encourage investment on the buyer side," he explained.
Commenting on the Qatari decision to increase its LNG production capacity, Adeli pointed out that the new capacity will not be commissioned for between five to seven years and it is still unclear to what extent Qatar will decide to boost production once it is operational.
Conceding that a major increase in Qatari production would affect markets, he said it was premature to suggest that Qatar's investment decision would cause the cancellation of other planned LNG projects. "Any cancellation would be due to broader market conditions and not due to one project only," he said.
Coleman for his part confirmed that the Qatari decision should not be viewed negatively from a market perspective.
"It's a very positive signal for the market and will encourage gas buyers to make investments which will boost demand. There will be a new supply and demand balance," he explained pointing out that in order to succeed any new LNG production projects simply need to be competitive. "It's a good time to be a buyer," said the Australian LNG producer and marketer.
David O'Byrne