Natural Gas Glut Begins to Shrink

Natural Gas Glut Begins to Shrink

Thursday, May 05, 2011
Houston Chronicle
by Tom Fowler

A global natural gas glut is disappearing sooner than expected, thanks to rebounding economies and troubles in Japan and the Middle East, panelists said at the Offshore Technology Conference on Wednesday.

The global recession, combined with a surge in natural gas production from prolific shale formations in the United States, sent supplies of the blue-burning fuel soaring and prices plummeting beginning in late 2008.

Some of that supply-demand imbalance had reversed as economies started to recover, but the pace has picked up, said Rafael McDonald, an associate director with research firm IHS-CERA.

The economies in China, India and Brazil were lightly touched by the global recession and are still growing quickly, McDonald said.

And some economies hit hard, such as South Korea's, have rebounded stronger than before, while back-to-back cold winters in Europe improved demand there, he said.

While Libya's oil and natural gas production is modest, the ongoing war there has cut into its marginal supply to Europe.

And Japan's demand for liquefied natural gas to fuel power plants soared after the March earthquake and tsunami knocked out nuclear power plants.

The gas outlook, which IHS-CERA has adjusted even since its annual CERAWeek conference in Houston in February, isn't changing Houston-based Cheniere Energy's plans to start exporting liquefied natural gas from a terminal it now uses to import it.

David Thames, president of Cheniere's marketing arm, said during the panel discussion that his company hopes to get final regulatory approval in 2012 for facilities to turn U.S. natural gas into LNG for export through the import terminal it opened at Sabine Pass in 2008. Exports could begin by 2015.

The Cheniere export facility won't actually sell natural gas, Thames said, but rather the capacity to convert it to LNG. He said that reduces the risk of the project and makes it more competitive with other LNG projects around the globe.

Exporting of domestic natural gas could face political opposition, given the nation's dependence on overseas oil, Thames said. But as a member of the World Trade Organization and a signatory on many regional free trade agreements, the federal government can't prohibit such trade, he said.

Richard Davis, an executive with Bechtel Oil, Gas & Chemicals, the engineering and construction firm set to build the new Cheniere facilities, noted that an export terminal in Kenai, Alaska, has been sending LNG to Japan since 1969.

He said that building a facility from the ground up would cost twice as much as adding capacity for liquefying gas to an existing import facility, like Cheniere's, that already converts it back to gas from LNG delivered by tanker.

The U.S. chemical industry may see a renaissance in the coming years as shale gas production creates more supply and a cheap feedstock for chemical plants, the panel noted.

And U.S. power plants using natural gas are expected to increase the demand for the fuel in the coming years as more coal-fired plants are retired due to tougher air quality rules.

But that doesn't mean the U.S. will see natural gas shortages any time soon, said Emma Cochrane, vice president of Exxon Mobil Corp.'s Asia Pacific, Africa and Power business.

By 2025 U.S. natural gas production capacity is expected to grow beyond what the country will consume by then, even with a strong economic rebound.

"The U.S. will be almost completely self sufficient for natural gas in 2030," Cochrane said.

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