Natural Gas, Suddenly Abundant, Is Cheaper
COMMENT: Natural gas prices were an intense subject of discussion years ago with the GSX Pipeline. At the time, BC Hydro's energy economist was predicting a long term future price for natural gas of $3 a thousand cubic feet. Gas had recently shot up to $10 with the California energy crisis, so GSX opponents were taking every opportunity to observe that $3 might be a tad unrealistic. As you can see from the gas price chart at the bottom of this article, BC Hydro and the BC government abandoned their economist and bailed on the Duke Point gas plant and the GSX, just before gas flared up to $16/mcf.
These high prices stimulated investment in getting cheap gas to North America and elsewhere in the high-demand, developed world - the LNG industry took off in tandem with the prices and we witnessed proposals for LNG import terminals all around North America. Well, prices have fallen again, with the discovery of a lot of shale gas from northeastern BC to Texas, and with global economic collapse. And fallen too have been many of the LNG import proposals. One of BC's LNG projects, Kitimat LNG, last year said it was reversing direction and would be exporting LNG (though some observers think the company is just trying to mollify its investors and keep the project alive, somehow, anyhow). The Texada Island project of WestPac LNG has disappeared from sight, gone silent, economically unviable, and resoundingly unpopular, with BC Hydro stating categorically that it has no intention of buying electricity from any new natural gas fired generation plants in BC.
That doesn't mean it is dead. More likely it is undead, out there among the vast wasteland of other unviable and unbuilt projects which came in with so many exuberant promises ... and quietly faded away a year or two later.
By CLIFFORD KRAUSS
New York Times
March 20, 2009
HOUSTON — The decline in crude oil prices gets all the headlines, but the first globalized natural gas glut in history is driving an even more drastic collapse in the cost of gas that cooks food, heats homes and runs factories in the United States and many other countries.
A liquefied natural gas plant on an island near Russia will supply Asia and the United States. (Natalia Kolesnikova/Agence France-Presse — Getty Images) |
Six giant plants capable of cooling and liquefying gas for export are due to come on line this year just as the economies of the Asian and European countries that import the most gas to run their industries are slowing.
Energy experts and company executives say that means loads of gas from Qatar, Egypt, Nigeria and Algeria that otherwise would be going to Japan, Korea, Taiwan and Spain are beginning to arrive in supertankers in the United States, even though there is a gas glut here, too.
With industrial and utility use of natural gas declining, gas prices in the United States have already declined by two-thirds since the summer. Prices are not likely to go down much more, experts say, but an increase in imports is likely to keep them low until the global economy recovers and drives demand back up.
That is good news for American consumers and many businesses, since gas provides about a fifth of the power generated by electric utilities and is a vital component for fertilizers, plastics and other industrial products. But it is bad news for proponents of energy independence, who cheered the boom in domestic gas drilling and production over the last four years.
Gas industry executives expect that liquefied gas imports into the United States will at least triple in the second half of this year. That comes as domestic producers have lowered their rig count in natural gas fields around the country by 50 percent in the last several months because of the fall in prices, leading to an expected drop in production by the end of the year.
Normally a decline in production would result in a rising gas price, leading to an eventual recovery in drilling. But energy executives say that increasing imports will probably delay a recovery in production, which until now depended almost entirely on national market forces.
“The United States used to have gas bubbles all by itself; now the world can have a gas bubble,” said Donald Hertzmark, a consultant who advises energy companies on international gas projects. “Over the next few years, a globalized gas market will exert a moderating influence on gas prices here in the United States.”
For Mr. Hertzmark the decline in natural gas prices will mean a major stimulus for the domestic and world economies. American oil executives see it another way.
Rodney Waller, a senior vice president at the oil and gas company Range Resources, called the expected surge in liquefied natural gas imports part of a “pile on” of problems including plummeting demand, prices and credit besetting companies that stretched their exploration and production budgets in recent years to meet expanding demand.
“Any time you push the price down, you push down the ability of U.S. independents to add reserves and production domestically,” he said. He warned that some small and midsize oil and gas companies “with debt that are in trouble now will simply get pushed over the brink.”
Natural gas is becoming a world commodity like oil. It is still loosely connected to world oil benchmark prices and its price, usually set by longer-term contracts everywhere except for the United States and Britain, can diverge widely from one continent to another. Until the last few years, liquefied natural gas was a high-priced necessity for countries that did not produce their own gas supplies or have access to piped reserves; but it now has become a cheap economic driver for countries like Japan with few energy resources.
But as more terminals have been built, the amount of gas that is shipped from one continent to another in giant tankers has climbed. And now the emergence of the global market in gas is about to take a giant leap.
The global capacity for liquefied natural gas exports of 200 million tons a year will increase by 25 percent with the completion of six new plants in Qatar, Russia, Indonesia and Yemen, totaling $48 billion in investments, and the upgrading of a seventh plant in Malaysia. National energy companies in those countries, assisted by ExxonMobil, Total, BP and Shell, rushed construction of those projects in recent years to satisfy the mushrooming appetite for energy around the world. More large plants are due on line in 2010 and 2011.
“We had many years of ever increasing demand so the world geared up for that, but what the world did not prepare for was an economic recession that is global in scope and in impact,” said Darcel L. Hulse, president and chief executive officer of Sempra LNG, a division of Sempra Energy that operates an import terminal in Mexico and is completing construction on a facility in Louisiana. “That is what has exacerbated the imbalance of supply and demand to such an excess.”
Some analysts say companies may slow completion of a few of the new export terminal projects. “The companies will want to bring them on line because they want to recoup their investments made over four to five years and pay off their loans,” said Nikos Tsafos, an analyst at PFC Energy, a firm that advises governments and energy companies.
The international gas glut and expected surge in gas imports represent a reversal from trends of less than a year ago when the world suffered a shortage of liquefied gas and prices spiked in the United States and elsewhere.
Natural gas in the United States costs a little over $4 per thousand cubic feet, down from a peak of more than $13 last year. Oil now costs a bit more than $51 a barrel, down from a peak of more than $145 in July. On average, world spot prices for liquefied natural gas cargoes have come down by more than two-thirds since last summer.
