The impact of growing gas supplies on the global energy landscape and the prospect of deeper declines in Iranian oil exports as Western sanctions bite will dominate talks at a gas conference next week in Malaysia.
The World Gas Conference in Kuala Lumpur takes place this year in the heart of the Asian region, where energy hungry economies such as China and Japan are driving rising gas demand. The same countries are wrestling with how to ensure short-term oil supplies if the flow from Iran is disrupted.
Global gas demand could rise by more than 50 percent between 2010 and 2035 and account for a quarter of the world’s energy mix, overtaking coal to become the second-largest primary energy source after oil, the International Energy Agency has projected.
The world is also seeing cheap new shale gas supplies from the United States, which could compete on world markets with traditional suppliers of liquefied natural gas, such as Australia and Qatar.
Oil executives, regulators and industry experts will also discuss how to exploit potentially massive shale gas reserves in China, as well as big gas finds in East Africa and other places such as offshore Israel.
Growth in gas trapped in shale formations in the United States and China over the next 20 years could match gains made in conventional gas in Russia, the Middle East and North Africa combined, the IEA has said.
“The geopolitical implications of that are enormous,” Noel Tomnay, head of global gas research at Wood Mackenzie said. “How do you monetise all this extra gas from the United States?”
Besides exporting coal, the United States will export LNG, oil products and perhaps even crude oil in the next 10 to 15 years, he added.
Global energy markets are also set to be transformed by deeper cuts in Iranian oil exports, with European Union sanctions targeting shipments by one of the world’s top producers due to kick in from July.
The sanctions aim to stop Tehran’s controversial nuclear program. The West suspects Iran is trying to develop atomic bombs, while Iran says its nuclear work is solely for civilian purposes.
Scramble for gas
Low U.S. gas prices have prompted a string of U.S. LNG export proposals over the past year. Natural gas in Europe and Asia is several times more expensive than the United States, where record production from newly developed shale deposits has pushed prices to 10-year lows.
“We have now seen such a big discrepancy between LNG prices in Asia and gas in other regions,” Scott Darling, head of Asia oil and gas research at Barclays Capital, said. That will lead to more LNG exports from the U.S. to Asia.
LNG exports from the United States will put pressure on existing suppliers to Asia, who have been selling LNG at crude oil-linked prices.
Already, Chinese and Japanese companies have been signing up for future U.S. supplies and investing in North American LNG export facilities, including one in west Canada.
Japan, the world’s largest LNG importer, has been racing to secure supplies to replace lost nuclear capacity following the Fukushima nuclear power crisis.
Japanese companies have played an active role in LNG-related acquisitions this year. In the latest transaction, trading houses Mitsui & Co and Mitsubishi Corp announced a deal to buy a stake in an Australian LNG project from Woodside Petroleum for $2 billion.
Explorers are turning their attention to East Africa after the recent large gas finds. Discoveries in eastern Africa in the past year have sent shares in small explorers soaring, prompted takeover battles and rattled gas producers in other regions.
Thailand’s PTT Exploration and Production is in a bidding war with Royal Dutch Shell for UK-listed Cove Energy, which has an 8.5 percent stake in a gas find offshore northern Mozambique.
The heads of Exxon Mobil, Shell and Total, and state oil companies such as PetroChina and Malaysia’s Petronas, are due to attend the conference and will also focus on the pace of growth in the Asian region.
BP has said natural gas is projected to be the fastest growing fossil fuel globally to 2030 at an average annual rate of 2.1 percent, with non-OECD countries accounting for 80 percent of the global rise in gas consumption.
While natural gas has a strong long term demand outlook, concerns are rising that the euro zone crisis could spark an economic slowdown globally and hurt energy consumption. Weak demand in Europe could prompt the world’s largest gas producer, Russia, to change its strategy and target China instead.
Other suppliers will also be targeting China, where gas only accounts for about 4 percent of its energy mix compared with about 25 percent in developed countries.
“What’s Russia going to do about the fact that Russia’s European market is in the doldrums?” Tomnay said. “It’s got lots of gas and it’s going to have to change its strategy.”