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The ‘age of gas’ is now well and truly upon the global energy markets. Fracking has sky-rocketed supply of natural gas from shale and tight formations. Gas has shifted from being a regional fuel to becoming a focal point of global energy supply.

Natural gas has historically lagged behind oil as a fuel since it requires end-to-end investment in pipelines or needs to be cooled to cryogenic temperatures as LNG, for transportation to the end customer. The striking growth in LNG trade over the last five decades is evidence of linkages being forged between the key regional gas hotspots and demand centres. This has also been accompanied by increased spot trade and by greater flexibility in the terms and conditions of long-term gas contracts.

Supply dynamics

The past couple of years have seen the emergence of a few mega trends on the supply side.

Shale gas takes centre-stage in the US

Shale gas has transformed the US energy landscape. Reserves in the US stood at 129.4 trillion ft3 in 2012, up from 34 trillion ft3 in 2008. Between 2008 and 2011, US shale gas production rose by over 55% each year to almost 8 trillion ft3 in 2011, and its share of total US gas production jumped from 5% to 39%. The US has become the top producer of oil and gas, which led to a large drop in Henry Hub (HH) prices, from US$ 13/million Btu in 2008, to US$ 1.9/million Btu in April 2012 before recovering to US$ 4/million Btu levels in 2013 and 2014.

Russia looks East

Russia has finally agreed to supply China with up to 38 billion m3/year of gas for 30 years through its pipeline network. The relatively low price that China will pay for Russian gas (US$ 350 per 1000 m3, roughly 10% below European prices as per analyst estimates) is going to put downward pressure on the current Japan Crude Cocktail (JCC)/HH linked contracts. Experts believe that pipeline gas from Russia can bring prices down from US$ 13/million Btu to US$ 10 - 10.5/million Btu.

Frontier regions

The International Energy Agency (IEA) estimates that Africa holds approximately 74 trillion m3 of technically recoverable natural gas reserves, roughly 10% of the world’s total, with the majority still undiscovered. A significant portion of the gas lies off the coast of Mozambique, whose recoverable offshore discoveries total more than 150 trillion ft3, with more expected. Tanzania has at least 30 trillion ft3 of recoverable gas offshore.

Mozambique currently plans to bring LNG on stream before 2018 and Tanzania plans on doing the same before 2020. Development is complicated by…..

This article originally appeared in the November/December 2014 issue of LNG Industry.

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Written by Naoki Shimoda and Girish Shirodkar, Strategic Decisions Group.

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