The Oil Drum

34 comments on Gas supplies continue to be negotiated

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Dave Cohen on April 4, 2006 - 3:58pm

Thanks for the post, HO.

Given that you've got basically only two alternatives, pipelines or LNG for transport and also that both involve long-term contracts in most cases, the scramble is on now to secure supplies up to 5 years out and beyond. I'm not saying there isn't a spot market. But the major positioning (eg. the US with Qatar, the Russians with the Chinese) is going on in the present. I wonder if people appreciate the importance of the current geopolitical positioning over securing future natural gas supplies.

Also, aside from our (US) current importers, does the US have any deals going (outside Qatar, 2009) with any other major new LNG suppliers? I'm only aware of Shtokman (Russia) being a new US supplier but that's years away as well. Also, the Alaska pipeline is 7 or 8 years away. The next 3 years look shaky for US supply and it's still tight after that if everything goes as planned--which never happens.

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Heading Out on April 4, 2006 - 4:49pm

Dave:
According to the BG Webpage the US has commitments as follows

During the fourth quarter, Lake Charles received its first LNG cargoes from Egyptian LNG Train 2. From 2006, contracted supply will rise to 10 mtpa, with new long-term supply contracts from Trinidad and Tobago (Atlantic LNG Train 4) and Nigeria, and increase further from 2007 with supply from Equatorial Guinea. In addition, in February 2006, BG Group signed a Memorandum of Understanding (MOU) with Nigeria's Brass LNG for the acquisition of 2.0 mtpa of LNG for 20 years, with initial deliveries expected to start during 2010. It is planned that cargoes will be delivered on an ex-ship basis to Lake Charles and Elba Island but BG Group will retain destination flexibility. During 2005, BG Group continued to source cargoes on the short-term market.

Note that this is only for Lake Charles and Elba Island. I think the Nigerian Train 6 is aimed at a different destination. Chevron lists several potential sources for Point Pelican and the Baja California terminals. Poten lists several new sources including Oman and Australia that have just come on line. Though the comment in that report that "From a performance perspective the industry is showing strain across the board," isn't particularly encouraging, but could be just due to the shake-down of a lot of these newer operations.

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Heading Out on April 4, 2006 - 5:05pm

Further to Dave's comment on the need to establish long-term contracts for supply, the case of Korea might be considered. Korea has according to Poten currently got a short-term contract with Indonesia for about a quarter of its energy supply, but Indonesia is now expected to significantly drop production by the end of this year. This will also impact China and Japan, but the latter have been aggressively chasing new contracts. Korea has apparently not, and is thus thrown onto the spot market where prices have been much higher, and where, as the UK recently found out, supplies are not necessarily always available.