Thursday, November 20, 2008

Uncertain future for natural gas

Published: Thursday November 20, 2008

The future for natural gas is grim.

That's the view of BP's group chief economist and vice president, Christof Ruhl.

Ruhl predicted yesterday that natural gas demand will decline and prices will soften in the coming year as liquefied natural gas (LNG) projects in Quatar and Indonesia come on stream putting pressure on prices.

But he said he was not willing to speculate about how much pressure and what the price of natural gas would be.

He said that while oil prices have jumped about 300 per cent over a five year period, the same did not apply to natural gas. Instead, he said the gas price grew a bit slower but steadily and the current natural gas price average of US$6.81 per million metric British thermal unit (mmbtu) was just a 100 per cent increase.

"The demand decline, as a result of a recession, is different from oil because it is harder to calculate because there are several different (LNG) contracts. The reaction will be differnet," he said.

Since the passage of the 2008/9 budget, the Patrick Manning Government has responded to criticism of the US$70 per barrel price it had used to estimate Government revenues from oil by saying that T&T was now a gas-based and not an oil-based economy. The Government has insisted that the figure to watch was the gas price which was pegged at US$4 per mmbtu.

Ruhl said that the US was looking at its own energy security and would seek to increase its LNG production which could impact its demand.

Energy Minister Conrad Enill has previously dismissed the notion that T&T's preferrential LNG market in the US was threatened. T&T exports 70 per cent of its LNG to the US and the US gets 58 per cent of its total LNG imports from T&T.

Enill says if T&T's loses access to the US market, there are more markets available.

But T&T already faces revenue losses in the energy sector as several plants in the Point Lisas Industrial Estate have ceased production and are using the downtime to do maintenance work. More importantly, the National Gas Company already has excess gas on its hands.

Ruhl said, "Because of the recession, consumption is doubtful. It would be dishonest to say that consumption would decrease, we can't know. That's a risk to the downside. There will be a situation where there will be no additional demand for enegry from the US but there may be a need to cut down domestic production.

"Gas markets in the short term are in a difficult position. In the long term, they will continue to do what they do at the moment which is an increasing amount of global integration. In particular, the LNG market becomes more globally integrated and more and more susceptible to changes in cargoes given changes in spot prices," he told reporters at a luncheon hosted by bpTT yesterday at its headquarters at Queen’s Park West, Port-of-Spain.

In its 2008 report, the International Energy Agency noted that global demand for natural gas will grow more quickly than oil, by 1.8 per cent per year, its share in total energy demand rising marginally to 22 per cent.

Most of the growth in natural gas use comes from the power-generation sector, it said.

Source: Trinidad Guardian Newspapers

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