There is an old saying in Washington, D.C. that all politics is local. Historically, in the United States, that could be said of natural gas as well. At least, we would have said all natural gas is domestic.
But over the past several years, the US has seen a dramatic shift in its natural gas supply sources, driven by an ever-increasing demand for the clean-burning, environmentally-friendly fuel. As the demand for natural gas began to outstrip the domestic supply, Canada became an attractive source of natural gas for the US market.
But, as we start the new year, it is becoming increasingly clear that Canada will not be in a position to increase its imports to the United States sufficiently to meet growing demand. Hence, the growing popularity of liquefied natural gas (LNG).
As the United States focuses more on LNG as it looks to meet its future natural gas needs, it is incumbent on those in the US gas markets to understand that LNG is a globally traded commodity, and thus, attention must be beyond the parochial domestic natural gas markets to the global market for LNG. By so doing, it is readily apparent that natural gas is in high demand worldwide.
The United States Energy Information Administration (EIA), in its International Energy Outlook 2006, notes: ‘Natural gas consumption worldwide increases at an average rate of 2.4 per cent annually from 2003 to 2030.’
Natural gas growth rate
In key regional gas markets such as Japan, Korea and Taiwan, North America, Russia, and Europe, natural gas consumption is expected to rise. Of those regions, Europe is expected to see the largest growth, projected at 2.0 per cent per year to 2030. Even though such a growth rate is respectable, it pales in comparison to China and India.
Recognising that natural gas is a minor part of the overall fuel mix in those countries, the EIA predicts that annual natural gas consumption will grow in China by 6.8 per cent and in India by 5.9 per cent. The EIA further estimates that natural gas imports will constitute more than 40 per cent of the natural gas demand in those countries by 2030.
So, what does that have to do with the United States natural gas market? The United States has a large and growing demand for natural gas. In fact, it is projected by the EIA that US consumption will outpace its production so that by the year 2030, there will be a 21 per cent gap between supply and demand.
That gap already exists today because the domestic gas supplies can no longer meet the ever-increasing demand due to flat to declining productivity in its existing gas production areas and government policy that restricts access to new supplies in the United States. In addition, US natural gas imports from Canada by pipeline are facing similar flat to declining productivity, and thus contributing to the gap.
Even if the US uses all of the domestic gas supplies available, including new supplies from Alaska and the deepwater Gulf of Mexico, it will have to import gas from Canada and in the form of LNG in order to meet demand. That means the US will have to compete globally for an increasing share of the LNG market in the years to come.
Demand and supply
Historically, the Atlantic Basin has been the source of most of the LNG coming into the US. In 2006, the United States received LNG from Algeria, Nigeria, Trinidad and Tobago, and Egypt. The US Department of Energy’s Office of Fossil Energy reported that Trinidad and Tobago’s exports of LNG to the United States represented approximately 68 per cent of the total LNG imports into the US Egypt was second at 20 per cent, with Nigeria and Algeria rounding out the field at approximately eight per cent and four per cent respectively. New and expanded LNG liquefaction plants under construction in Alger ia, Niger ia, Qatar, and Equatorial Guinea will add to the global supply of LNG.
However, some of the projects have been slow to start-up due to escalating costs affecting the energy industry and from construction delays. In any event, it is expected some of these new supplies of LNG will come on-line during 2007 and 2008.