Natural Gas Supply and demand
An Excerpt from a Forbes article.
As the world's largest private producer of liquefied natural gas, Shell is locked into huge LNG investments for years to come. Today that LNG is proving difficult to unload. Since Japan, which uses half the world's LNG, is still struggling to revive its economy, Shell is counting on Korea, India and China to take up the slack. But, as a sign of how difficult it is to find new LNG customers in Asia these days, Shell is talking about shipping its LNG from the Far East to the U.S., where it would have to build regasification plants to take the stuff. Shell has a 55% stake in the $9 billion Sakhalin 2 project, just north of energy-hungry Japan; production from a field containing 1 billion barrels of oil and 15 trillion cubic feet of gas is supposed to start in 2006. Since 1997 Shell has also had a strategic alliance with Gazprom, the Russian natural gas monopoly, which sits on 30% of the world's known gas reserves. The two companies are talking about developing a big gas field in western Siberia together.
Another article shows the regasification effort underway.
Strong gas demand for power generation and steep decline rates in gas producing regions have bolstered the gas market. Add to that new sources of global gas supply and significant advances in liquefaction and LNG shipping technology that have brought down costs. The magic number is right around $3.00 per Mcf when LNG becomes economic in the United States.
Judging by the number of LNG projects proposed for North America-around 20, give or take-plenty in the industry are taking a bullish view on gas and LNG.
• Nigeria Liquefied Natural Gas Co. says it will enter the U.S. long-term gas market. NLNG has agreed with Royal Dutch Shell's Shell Western Supply and Trading to deliver 1.5 Bcf of gas per year targeted for the U.S. market. Further, an additional 1.3 Bcf could be coming to the U.S. market from the parties. Production is expected to come on stream in 2005.
• Shell Gas & Power plans to develop an LNG regasification terminal in Baja California on the western coast of Mexico. Shell has contracted the supply of an initial 7.5 million tons of LNG per year, which will come from the Asia-Pacific region.
• Also targeting Baja California is a group led by Marathon Oil that is proposing an LNG regasification and power generation complex near Tijuana, Mex. The project would be able to regasify up to 750 MMcf/d of LNG for local use and export to Southern California. Project partner Pertamina, the state-owned oil company of Indonesia, is expected to be a key supplier to the project.
• Dynegy plans to build a LNG terminal in Hackberry, near Lake Charles, La. Slated for completion in mid-2006, the plant will be capable of processing 1.5 Bcf per day.
• Cheniere Energy is planning a 1 Bcf/day LNG import terminal in Freeport, Texas,
• Hunt Oil and Halliburton are studying the building of an LNG facility to ship Peruvian gas to the western United States and Mexico by 2006.Hunt's Camisea LNG Co. is to pay Halliburton's Kellogg Brown & Root $8.5 million to assess building a facility on Peru's coast, and
• CMS Energy Corp.'s LNG unit CMS Trunkline LNG Co. is expanding its Lake Charles facility to approximately 1.2 Bcf/day of send-out capacity, up from 630 MMcf/day. The Lake Charles terminal has steadily grown to be the largest operator of U.S. import facilities.
There are plenty of other LNG projects around the world to add to the list. Not all of them will go forward, but if a recent gas production survey of the 30 largest U.S. producers by Raymond James is any indication, the projects have strong fundamental support. "Results (of the survey) suggest that not only will U.S. natural gas production decline sequentially for the third consecutive quarter but also that this gas production decline is accelerating." The James brief projects on a year-to-year basis, U.S. gas production will be down by 2.9% in the first quarter of 2002. "Based on these numbers, it appears that supply is declining much faster than most have expected." Bring on the LNG.
I have been watching the sector. Right now there is more supply than demand but not many companies want to sell at prices lower than $3. The Sector was a bubble that collapsed when prices were double digits. Eventually the holding the line on $3 will break and prices will go lower.
Jack |
