Natural Gas, Suddenly Abundant, Is Cheaper
New York Times
21 March 2009
By Clifford Krauss
HOUSTON - The decline in crude oil prices gets all the headlines, but
the first globalized natural gas glut in history is driving an even
more drastic collapse in the cost of gas that cooks food, heats homes
and runs factories in the United States and many other countries.
Six giant plants capable of cooling and liquefying gas for export are
due to come on line this year just as the economies of the Asian and
European countries that import the most gas to run their industries are
slowing.
Energy experts and company executives say that means loads of gas from
Qatar, Egypt, Nigeria and Algeria that otherwise would be going to
Japan, Korea, Taiwan and Spain are beginning to arrive in supertankers
in the United States, even though there is a gas glut here, too.
With industrial and utility use of natural gas declining, gas prices in
the United States have already declined by two-thirds since the summer.
Prices are not likely to go down much more, experts say, but an
increase in imports is likely to keep them low until the global economy
recovers and drives demand back up.
That is good news for American consumers and many businesses, since gas
provides about a fifth of the power generated by electric utilities and
is a vital component for fertilizers, plastics and other industrial
products. But it is bad news for proponents of energy independence, who
cheered the boom in domestic gas drilling and production over the last
four years.
Gas industry executives expect that liquefied gas imports into the
United States will at least triple in the second half of this year.
That comes as domestic producers have lowered their rig count in
natural gas fields around the country by 50 percent in the last several
months because of the fall in prices, leading to an expected drop in
production by the end of the year.
Normally a decline in production would result in a rising gas price,
leading to an eventual recovery in drilling. But energy executives say
that increasing imports will probably delay a recovery in production,
which until now depended almost entirely on national market forces.
"The United States used to have gas bubbles all by itself; now the
world can have a gas bubble," said Donald Hertzmark, a consultant who
advises energy companies on international gas projects. "Over the next
few years, a globalized gas market will exert a moderating influence on
gas prices here in the United States."
For Mr. Hertzmark the decline in natural gas prices will mean a major
stimulus for the domestic and world economies. American oil executives
see it another way.
Rodney Waller, a senior vice president at the oil and gas company Range
Resources, called the expected surge in liquefied natural gas imports
part of a "pile on" of problems including plummeting demand, prices and
credit besetting companies that stretched their exploration and
production budgets in recent years to meet expanding demand.
"Any time you push the price down, you push down the ability of U.S.
independents to add reserves and production domestically," he said. He
warned that some small and midsize oil and gas companies "with debt
that are in trouble now will simply get pushed over the brink."
Natural gas is becoming a world commodity like oil. It is still loosely
connected to world oil benchmark prices and its price, usually set by
longer-term contracts everywhere except for the United States and
Britain, can diverge widely from one continent to another. Until the
last few years, liquefied natural gas was a high-priced necessity for
countries that did not produce their own gas supplies or have access to
piped reserves; but it now has become a cheap economic driver for
countries like Japan with few energy resources.
But as more terminals have been built, the amount of gas that is
shipped from one continent to another in giant tankers has climbed. And
now the emergence of the global market in gas is about to take a giant
leap.
The global capacity for liquefied natural gas exports of 200 million
tons a year will increase by 25 percent with the completion of six new
plants in Qatar, Russia, Indonesia and Yemen, totaling $48 billion in
investments, and the upgrading of a seventh plant in Malaysia. National
energy companies in those countries, assisted by ExxonMobil, Total, BP
and Shell, rushed construction of those projects in recent years to
satisfy the mushrooming appetite for energy around the world. More
large plants are due on line in 2010 and 2011.
"We had many years of ever increasing demand so the world geared up for
that, but what the world did not prepare for was an economic recession
that is global in scope and in impact," said Darcel L. Hulse, president
and chief executive officer of Sempra LNG, a division of Sempra Energy
that operates an import terminal in Mexico and is completing
construction on a facility in Louisiana. "That is what has exacerbated
the imbalance of supply and demand to such an excess."
Some analysts say companies may slow completion of a few of the new
export terminal projects. "The companies will want to bring them on
line because they want to recoup their investments made over four to
five years and pay off their loans," said Nikos Tsafos, an analyst at
PFC Energy, a firm that advises governments and energy companies.
The international gas glut and expected surge in gas imports represent
a reversal from trends of less than a year ago when the world suffered
a shortage of liquefied gas and prices spiked in the United States and
elsewhere.
Natural gas in the United States costs a little over $4 per thousand
cubic feet, down from a peak of more than $13 last year. Oil now costs
a bit more than $51 a barrel, down from a peak of more than $145 in
July. On average, world spot prices for liquefied natural gas cargoes
have come down by more than two-thirds since last summer.