March 10, 2014
Shale gas revolution and LNG prospects
By Jan Kok
For the Herald
Shale gas is becoming the next energy revolution. Gas is the cleanest fossil fuel and, compared to other alternative fuels, rather cheap. Take Gas Oil, for example, (amply used in electricity generation in the absence of gas) which cost around US$30 per Million BTU (MMBTU) whilst the most expensive equivalent LNG cost around U$17/MMBTU.
The amount of gas that can be extracted by fracking reservoirs which cannot be developed by conventional means is, to put it mildly, huge.
Intensive development of shale gas areas in the United States is changing many economic paradigms. For one, the US will become one of the largest producers of gas in the world.
Import facilities of LNG are being turned into export facilities ready to start sending out cargoes by 2015.
Shale gas production is not so easy. It requires vast amounts of water, chemicals and space.
Not all shale gas can be easily produced, even when available. Imagine Paris with a fracking site the size of Bois de Boulogne or anywhere in China with its vast population and lack of space (and water). Nevertheless, gas will change the scope of energy trading in the very near future.
Gas can be transported by pipeline over any distance. It can also be liquefied as LNG and shipped anywhere in the world. Even for relatively short distances the cost/benefit of LNG production/shipping and regasification can be competitive.
LNG is relatively new as a grand-scale gas trading form. However, it started over 40 years ago, mostly in Europe and the Far East.
During the last 10 years it grew substantially on the back of Middle East exports and larger demand from the Far East.
Furthermore, new export facilities have popped up in Australia, West Africa, the former USSR, the Middle East and Northern Africa (on top of already existing ones).
The current production capacity of LNG is estimated at some 242 million tons per year (MTPA) and new export projects under development estimate an output by 2017 of 330 MTPA. Many of the project startups under development have been delayed and there may be some shortage in supply between 2014 and 2016 as demand keeps surging very fast.
The shutdown of most of the nuclear power plants in Japan have created an impressive demand surge from some 65 MTPA in 2009 to a peak of over 90MTPA for last year (for comparison purposes, Argentina currently imports around 5-6 MTPA).
There are currently 379 LNG carriers in the fleet and 100 are being built (26 percent of the existing ones). Whilst this may create a surplus of tonage for the next coming years, on the other hand new export facilities will come on stream and it is expected that by 2020 some 370 additional vessels will be needed.
Considering that part of the existing fleet consists of “first generation” vessels built in the 70’s, it is clear that the need for additional tonnage will be not only for new projects but also to replace the older ships.
So, (shale) gas and LNG will grow and, in some ways, will revolutionize the existing trading pattern of energy as importers will become exporters and existing exporters will have to work harder to trade their energy products.
For Argentina it is very important to secure the supply of LNG over the next few years where new import facilities will compete very strongly for supply (and price).