Summary
ExxonMobil and Qatar Petroluem announced the completion and start up of Qatargas 2 Train 5. It is one of the largest liquefied natural (LNG) gas production facilities in the world. Qatargas 2 Train 4 started in the second quarter. Each has the capacity to produce 7.8 million tons/year. Neil Duffin of ExxonMobil Development Company said it was another milestone in the effort to increase supplies of clean-burning natural gas. The venture includes a fleet of Q-Max and Q-flex carriers.
Analysis
Last week, the Henry Hub spot price for natural gas touched $1.83/million btu. On August 28, the Purvin & Gertz LNG netback at the Isle of Grain was $2.13/million btu for Algerian LNG. At Lake Charles the netback price touched $0.44 for Nigerian LNG and close study of all sources reveals that the potential for prices to go lower is real. While ExxonMobil is in a leadership position, they are joined by many others including Royal Dutch Shell, Total GDF-Suez, BG, Chevron plus national oil companies that include Saudi Aramco, Sonatrach, Sonangol and Gazprom among others. Even with a strong growth in demand for all categories of natural gas, it is now reaching the point where LNG has a commanding lead by virtue of its low and falling extraction cost. One possible consequence of this in Europe is that Gazprom's North Stream and South Stream pipelines no longer make economic sense. It also means that the European Union is in position to break the grip that Gazprom has on about one quarter of the market. In the U.S., shale gas producers face a long dreary road as gas prices remain at or below extraction costs. A further complication faced by these producers is legislation regarding pure water which will add to shale gas production costs. In Canada, on the other hand, where great volumes of natural gas are needed for extraction of bitumen in the Athabasca Region, lower operating costs may stimulate synthetic crude oil production from this source. In Asia, demand for all types of natural gas should continue to grow and it is possible that China and India can attract LNG cargos that otherwise would be sold at distress in the U.S. The one certainty is that this is a golden opportunity for world economies all over the world to switch transportation fuels from gasoline and diesel to compressed natural gas and LNG.
Michael Lynch consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
