Published: 2009/12/01 06:40:44 AM
WHEN Qatar’s biggest natural gas shipment to the US arrived last month, it signalled to Barclays Capital and PFC Energy that this year’s worst-performing commodity investment won’t recover next year.
Murwab, a Qatari liquefied natural gas tanker, carried the first shipment to the US from the Gulf state since June last year. Its cargo, enough to heat about 9- million US homes for a day, added to the largest gas inventories for this time of year since at least 1994, US energy department figures show.
Rising supplies threaten to hurt the record-large 4,2bn bet in the US Natural Gas Fund, while traders hold 51% more options contracts to buy gas than they do to sell.
The International Energy Agency (IEA) warned of a glut that Qatar’s energy minister said may last until 2012. Wall Street’s consensus forecast for a 51% rise in US gas futures to an average 6,09 per million British thermal units (Btu) next year is too high, according to industry consultant Schork Group .
“We have more gas than we know what to do with in the US, we have more waterborne gas floating around the … oceans that doesn’t have a home,” analyst Stephen Schork said.
US imports of liquefied natural gas will rise 34% this year to about 470-billion cubic feet and another 40% next year, the US energy department forecast last month. Global liquefied natural gas supply would exceed demand for a second year next year as new projects from Qatar to Peru boost output, Sanford C Bernstein said last month.
Natural gas for delivery next month dropped as much as 4,1% to 4,98 per million Btu in electronic trading on the New York Mercantile Exchange yesterday.
Gas has slumped 11% this year, the worst performance among the world’s biggest exchange-traded commodities. Gas peaked at 13,69 in July last year and declined to a low of 2,09 in September this year.
Governments and energy companies such as BP are promoting gas, which emits about half as much carbon dioxide as coal, to temper global warming.
New production in Qatar, which has the world’s third- largest gas reserves, is a legacy of decisions made years ago. As gas tripled between 2002 and 2008 and Qatar increased investments, it avoided locking in prices for about half of its new liquefied natural gas in anticipation of further gains . Instead, the global recession caused prices to collapse 25% last year.
“Qatar has had to supply the US, even though the returns are absolutely awful, because it is the sink for cargoes that can’t go anywhere else,” said Tony Regan, a consultant with Singapore-based Tri-Zen International .
“It’s the worst possible moment to increase production, because the world is in recession and prices are so low.”
US gas production rose last year to its highest since 1974 as the industry exploited extracted gas from new areas. Reserves in the US may be 39% higher than estimated two years ago, reflecting improved yields of gas stored in rocks such as shale, the Potential Gas Committee, a nonprofit group in Colorado said in June.
An “acute glut” is looming in the next five years owing to rising shale gas production in the US and Canada, the IEA said last month . “There is downward pressure on prices ,” said Biliana Pehlivanova, an analyst at Barclays Capital in New York, who forecasts 5,05 for next year. “We see a slow drift lower.”
A decline would be bad news for Oklahoma-based explorer Devon Energy , which is betting on US onshore gas production, as well as BP and Anadarko Petroleum , the two biggest producers in the US, and countries that benefit from gas sales, such as Norway and Algeria.
Qatar will host a meeting of the Gas Exporting Countries Forum of 11 states tomorrow to discuss sagging world markets. Russia and Iran, which have the largest reserves, are competing to name the first secretary- general, a step in establishing a group that may one day match the Organisation of Petroleum Exporting Countries’s price- setting clout in oil markets.
As the world’s most efficient producer, Qatar can profit from lower prices. It can pump 1-million Btu for as little as 0,15 compared with about 4 for Russia and Norway, says the IEA.
Most costs are covered by condensate, an oil-like petroleum that is pumped along with natural gas and refined as if it were crude. Qatar then spends another 2,83 to liquefy that gas ready for shipping.
The country plans to increase annual liquefied natural gas production capacity 43% to 77-million tons by the end of next year. As prices rose from 2 in 2002, Qatar resisted signing long-term contracts with Kuwait, the United Arab Emirates and India . Now, Qatar finds the spot market for excess supplies shrinking.
“By 2012-13, the world will see more demand” than supply, Qatar energy minister Abdullah al-Attiyah said at a conference in Doha last month, calling the drop in demand “short-term”.
Qatar ha d the right to divert cargoes away from the US if it found better prices elsewhere, al- Attiyah said .
China may become the biggest market for Qatari gas, Fu Chengyu, president of China National Offshore Oil, said last month. Domestic gas companies were told to increase production and imports last month to ease shortages, China’s National Development and Reform Commission said on Wednesday.
Shell CEO Peter Voser said in Zurich last month, “Any gas prices in Europe will actually have to compete with those prices in the Far East in order to get the gas to Europe.” Bloomberg
We have more gas than we know what to do with in the US, more waterborne gas floating around the oceans
Source: http://www.businessday.co.za/articles/Content.aspx?id=88459
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