Summary
The Rigzone Newsletter quoted the Xinhua Economic News of May 14 in reporting that China’s natural gas industry is rapidly developing. Market demand will reach 110 billion cubic meters in 2010, up from 80 billion in 2008. Natural gas supply for 2010 will only be 90 billion cubic meters. China’s urban areas encounter overwhelming demand. Natural gas consumption accounted for 3.2% of primary energy use in 2008. China’s proven natural gas reserves are less than one percent of the world’s total. To alleviate the imbalance, the nation has expanded exploration and raised the production capacity of domestic producers. China has not yet established a system for natural gas storage. Wang Tianxi, general director of the China City Gas Society encourages the importation of natural gas from the international market and establishing liquefied natural gas (LNG) supply systems.
Analysis
Demand for clean burning natural gas in Asia has not gone unnoticed by the international oil companies. The best markets for LNG are in Asia and will continue to be so indefinitely. China especially, with chronic air pollution problems, will be a ready buyer. India is not far behind. Natural gas shortages already plague Indonesia, Thailand and Vietnam. The entire economy of the Far East is out in front of both Europe and North America. Energy demand is a fact of life. The transition from a crude oil based world economy to one based on natural gas began over a decade ago. The oil and gas companies both national and international recognized that it was impossible to produce enough crude oil to supply the world because exploration and production was becoming increasingly more expensive. Today, in the deepening crisis, surplus avails of crude oil overhang the market but that will not last long because of a decline rate currently estimated to be over 6.5 %/year. Natural gas prices are predicted to remain low and may even fall for the next two or three years as large volumes of new LNG become available. Shale gas drillers in the U.S. are hardest hit. The Baker Hughes rig count for April was down 110 rigs from March levels and further declines are almost certain as natural gas prices in most regions of the country remain below production costs. While executives of the shale gas drillers are expecting a reversal of the price trends by year end 2009, if large volumes of LNG enter the U.S. as many predict, the low gas price era could endure for a long time. That is where the Chinese enter the picture. If their needs remain high and they divert Middle Eastern LNG to the Far East by paying higher prices, natural gas prices in the U.S. should indeed recover as high decline rates limit avails. A potential complication is LNG delivery from Russia’s Sakhalin Island. Gazprom is caught in the low price dilemma like everyone else in the business and needs sales growth in both Europe and Asia. Increasing volumes of LNG are entering Europe too, competing with Russian avails. The long-term picture is that the financial crisis will have the effect of increasing demand for low priced natural gas all over the world. In its varying forms, it is by far and away the most plentiful energy on the planet. The next three years will see LNG capture a much larger share of the energy market as it becomes more acceptable as a transportation fuel. It may be the prevailing fuel for a decade. The 21st Century looks likely to be the natural gas era just as crude oil was the energy of the 20th.
