By Robert Tuttle and Ahmed Rouaba
April 21 (Bloomberg) -- Natural-gas use in Europe and Asia is rebounding after the recession slashed consumption, two of the biggest gas supply companies said in Algeria, where exporting nations this week decided against curbing supply. Gas demand from industry has improved in the past couple of weeks, according to Alaa Abu Jbara, a marketing director at QatarGas, a venture in Qatar, the world’s biggest exporter of liquefied natural gas. Royal Dutch Shell Plc, the biggest non- state owned supplier of LNG, also expects a revival.
“It’s possible to eke out the first signs of recovery in the market,” Guy Outen, Shell’s executive vice president for exploration and production, said yesterday at a conference in Oran, Algeria. In addition to cold weather, “we are seeing underlying industrial demand picking up,” he said.
The upbeat demand assessment comes as energy ministers from gas-exporting nations, meeting earlier this week in Oran, failed to agree on any collective measures to reduce excess global supply that’s led to a 30 percent drop in U.S. natural gas futures this year. Gas extracted from shale rock in the U.S. has added extra supply, along with new LNG projects.
“The concern with cutting production is one should be sure someone else is not taking his place in the market,” Algerian Energy Minister Chakib Khelil said on April 19, after hosting the meeting of the Gas Exporting Countries Forum. Russia, Qatar and other members of the 11-nation group were opposed to Algeria’s suggestion of supply cuts.
Long-Term Contracts
Most European gas is priced on multiyear contracts linked to crude oil or related products. This has “caused high gas prices over the last few years” while spot prices on the open market have slumped, said Karen Sund, founder of Oslo-based consultant Sund Energy AS.
LNG buyers in Asia are no longer using “downward flexibility” provisions in long-term contracts, whereby they could reduce purchases, Shell’s Outen said.
“In the first quarter of this year, our customers were taking maximum volumes from their contracts compared to last year when they were taking minimum,” Omar Maaliou, director of the gas exporting division of Algerian state energy company Sonatrach, said in an interview in Oran yesterday.
Shell will increase annual production of LNG this year when its QatarGas4 venture with Qatar Petroleum starts production with capacity of 7.8 million tons a year. Half the project’s planned production has been diverted away from North America to China and Dubai, Gerrit-Jan Smitskamp, Shell’s regional vice president for finance, said in January. About 40 percent of the cargoes will go to China.
Demand to Double
World demand for LNG will double by 2020, Outen said, with European demand for gas rising 1 percent a year and local production falling 2 percent. Global demand for gas will rise 25 percent to 4 trillion cubic meters a year by 2020 as electricity demand increases 75 percent in the period, he said.
“Global gas demand is slowly picking up again, partly due to a buyers’ market situation with lower prices,” Sund, the Olso consultant, said in an e-mail.
The current global oversupply of gas isn’t due only to U.S. shale production, reducing North America’s need for imported LNG, she said. It also reflects lower-than-forecast demand in Europe, she said.
Liquefied gas exports using unconventional sources, such as shale rock, will have only a “limited” role in the future of the LNG industry, accounting for no more than 5 percent of global LNG supply by 2020, Frank Harris, an analyst at Wood Mackenzie Consultants Ltd., said yesterday in a video presentation to the LNG16 conference in Oran.
Source: http://www.bloomberg.com/apps/news?sid=aEOXFBM0Wgys&pid=20601087
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