All of a sudden everyone says what we've been saying for over a year: There is a global gas glut.
There may be an “acute glut” of natural gas in the next few years because of rising production of so-called unconventional fuel in the U.S. and Canada, according to the International Energy Agency.
Bloomberg have been slow on shale, whereas the WSJ has been on this since the beginning.
The International Energy Agency says in its annual outlook, published Tuesday, that a glut of natural gas is looming. The boom in North American shale gas and a demand-depressing recession mean there will be a giant amount of unused pipelines and liquefied gas terminals, enough to move 200 billion cubic meters, or 7.06 trillion cubic feet, by 2012. That’s more than enough for all of Africa or Latin America.
Back to Bloomberg:
Gas prices will tend to rise in Europe and Asia-Pacific because of the predominance of oil-indexation in their long-term supply contracts, diverging from those in North America,” according to the report
But WSJ says:
The consequences of that have already been felt on the European spot market. LNG exporters, discouraged from selling into the U.S. market, are increasingly offloading their cargoes in Europe and Asia, depressing spot prices.
That, the IEA says, “could increase the pressure on gas exporters and marketers in Europe and Asia-Pacific to move away from, or to adjust, the formal linkage between gas and oil prices in long-term contracts.” More uncontracted supplies being released to the spot market could push down prices and boost demand, especially in power generation, it says, which would soak up the supply glut.
The IEA report seems to have something for everyone's point of view. It mentions how uncertain shale gas is outside the US, while also mentioning what a game changer it can be:
The extent to which the boom in unconventional gas production in North America
can be replicated in other parts of the world endowed with such resources remains
highly uncertain. Outside North America, unconventional resources have not yet been
appraised in detail and gas production is still small. Some regions, including China,
India, Australia and Europe, are thought to hold large resources, but there are major
potential obstacles to their development in some cases.
This projection is subject to considerable uncertainty, especially after 2020; there is potential for output to increase much more.
No wonder people are confused. The IEA puts in all the usual dampers on shale outside the US and then says it can be much more.
We tend to believe the Wall Street Journal more. The IEA assumes that the gas/oil link will still be strong enough outside the US, whereas we and the WSJ think the gas oil link is wobbling in 2009. To assume it will still be around at all in 2020 is very optimistic.
The Oxford Institute for Energy Studies asks:
Continental European Long-Term Gas Contracts: is a transition away from oil product-linked pricing inevitable and imminent?
The spot market is too volatile which doesn't help anyone: producers,end-users or transporters. There has to be a new way to provide long term funding for gas without crippling volatility. But it might make gas geology look simple.
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