The technological advances in the oil and gas patch just keep coming. While everyone has been scrambling to catch up with the shale gas revolution, the industry has been working on another potentially significant breakthrough in gas. This one is in producing gas that has long been stranded offshore in areas too far or too small to warrant a pipeline to shore.
Royal Dutch Shell recently announced it would be the first producer to invest in a multibillion dollar project to capture this gas. The project will be a floating liquified natural gas terminal – known as a FLNG terminal in the industry – that makes it economic to get at such gas fields. No pipelines need to be built. Shell just produces the gas until it runs out and then moves along to the next field.
The debate about what might happen to spot natural gas prices as a result of the Japanese nuclear crisis rumbles on. The latest view comes from IHS Cera, and differentiates between what might happen in 2011 and in 2012-2014.
As others have, IHS Cera begins its calculations (which aren’t available online) with the effects of the smaller 2007 quake, which knocked out 8.2GW of nuclear power and sent gas prices up to $20/mBtu. But its analysts point out that world LNG capacity is expected to have increased by half between 2007 and 2012, which should provide enough slack to keep a lid on prices.
But the fact is, LNG is already being diverted from the UK and elsewhere in Europe, and so we already know Japan’s needs cannot solely be accounted for by additional capacity. Instead, Europe will have to rely more on pipeline gas.
My last post on Japanese LNG demand and its effect on prices generated some debate from readers, so here are a few more views from a report in Petroleum Economist.
As expected, the report states that Japan is not yet purchasing on the spot market, but is using existing long-term contracts. If suppliers are being generous, as Shell has promised to be, they shouldn’t be having to pay much more than normal for their supplies.
It has been well documented that the damage to Japan’s nuclear capacity could lead to a spike in demand for liquified natural gas. but how much could the country need, and what could that do to prices?
PFC Energy has come up with some fairly credible figures. Its analysts point out that in 2007, when a slightly smaller earthquake struck the country, it took out 8.2GW of nuclear capacity. In the aftermath, Japan’s spot LNG purchases jumped from 100 mtons to 500 mtons per month.
Shell has begun to ship liquid natural gas cargoes into Tokyo to help meet their energy demands in the aftermath of the earthquake and subsequent nuclear crisis. The first batch into the Tokyo Bay area was agreed on Monday night, and significantly for global LNG prices, it had originally been intended for elsewhere.
This was confirmed by the CEO Peter Voser at Shell’s strategy day, where unsurprisingly, much of the focus from journalists was on recent events in Japan and the Middle East. As far as Japan’s effect on gas prices, Simon Henry, the company’s chief financial officer, had this to say:
Last night, we agreed the first cargo into the Tokyo Bay area. We will not be taking advantage of the short term pricing implications of that.
More towards the medium term, after the last earthquake in Japan, the country spent two years bringing the nuclear plants back online, which did support the LNG markets.
The FT’s Javier Blas has been writing about the disruption in the energy markets as a result of the Japan earthquake. Here is the current state of play with energy-related commodity prices:
Natural gas – up 7.7 per cent
Analysts predict the knock to Japan’s nuclear capacity will lead it to import more natural gas, which will drive up overall demand.
Suppliers of liquified natural gas are watching the weather almost as closely as New Yorkers right now.
According to a new report by Barclays Capital, one of the only things that kept LNG demand and supply in balance in 2010 was the hellish winter in Europe and what the analysts call “exceptionally supportive weather” elsewhere.
The fact that the two did balance is a near-miracle, the report says:
2010 will go down as a year when the global LNG market somehow balanced despite expanding at seven times the rate of the previous two years.