Shale Revolution 3.0: Here Comes the Global Gas Market

via The Global Warming Policy Forum (GWPF)
http://www.thegwpf.com

Where once we grappled with the problems of energy scarcity, now we’re looking at the implications of a new energy abundance.

Natural gas may share the title of “hydrocarbon” with oil, and it may be a fossil fuel, but that’s about where the similarities end. For both suppliers and consumers, there’s no greater distinction between the two than how they are sold. The oil market is the most interconnected commodity market in the world—the price of a barrel of crude sold here in the United States is, today, within a few dollars of what it’s going for in Europe. Crude can be loaded up on a ship and sent halfway around the world, so producers have to pay attention to global supply when they set prices.

Not so for natural gas, at least not historically. Natural gas is trickier to transport. Most often it’s sent from supplier to consumer via pipelines, but these routes have geographical constraints and can produce bottlenecks. They also can’t cross oceans, which has led to the formation of multiple regional gas markets around the world.

There’s another option for transporting gas, though: superchilling it to liquid form to load on tankers to then be shipped anywhere else in the world (that has a facility capable of regassifying it). Liquified natural gas, or LNG, has the potential to make the global gas market look more like the global oil market, to make it one based on spot prices rather than long-term contracts whose prices have historically been tied to the price of oil.

And, as the WSJ reports, there’s evidence that that LNG-enabled transition is well underway:

The share of gas moving by sea reached 40% of total trades in 2015, and the International Energy Agency forecasts that seaborne gas will account for a bigger share of trading than pipelines by 2040.

Thirty-nine countries now import LNG, up from 17 a decade ago, according to data and analytics firm IHS Markit. Several more, among them Uruguay, Bahrain and Bangladesh, are expected to lift the total to 46 in the next couple of years.

But LNG isn’t the only force driving this transition to a global gas market. That shift is being expedited by the fact that, just as is the case with oil, there’s a glut of natural gas in the world right now. The WSJ has more:

At the heart of the changes is supply. Huge new discoveries in the U.S., Middle East, East Africa and Australia, along with recovery techniques such as fracking, have expanded the amount of gas available for export. Companies and countries are moving to develop new markets to where they can sell it all.

The upside of all of this has been a narrowing of the gap between various regional prices. There’s no bigger winner on that front than Asia, which has historically paid a hefty premium for its own LNG supplies. Back in 2012, the WSJ points out, “Asia spot prices for LNG were $5.74 per million British thermal units higher than natural-gas prices in Europe.” In 2017, “the difference has averaged less than $1.”

While Asia will welcome this new kind of market for its lower prices, Europe will be looking for a different sort of benefit: a reduction of its reliance on piped Russian gas, and the political strings that so often seem to come with it.