North American exports of natural gas threaten the dominance of gas
exporting giants like Russia, Qatar and Algeria who currently control
much of the world's gas supplies.
First U.S. natural gas exports are still three years away, but
it's already creating a buzz. Rivals who dominate the business now are
trying to play down the threat but they are already feeling the heat.
"They are all jittery," Prabhat Singh, marketing director at
India's state-run Gail (India) Ltd., told Dow Jones
Newswires in an interview on the sidelines of a conference. Gail,
India's largest gas utility, is emerging as a major LNG buyer in the
region.
Major exporters have traditionally wielded a commanding
position in market, be it piped gas or liquefied natural gas. Some have
displayed their clout by cutting off supplies. But this could be at risk
if North America enters the market with its cheaper, Henry Hub-linked
gas and there are signs it's already happening.
"There used to be a tone full of arrogance earlier," Mr. Singh
said, referring to major exporters' stance in price negotiations. "Now
there is a tone which has mellowed down."
U.S. gas production has surged over the past decade on the
back of technology that allows extraction of gas from shale deposits.
This has pushed U.S. gas prices to the lowest in a decade, opening up
the possibility of shipping gas to Asia where prices are just short of
record highs but demand is still robust.
Oil majors such as Exxon Mobil and Royal Dutch Shell are
exploring exports of natural gas from the U.S., which will require
multi-billion dollar investments to produce and liquefy the gas that
must be transported in specially designed tankers.
Gail has already signed a contract to buy LNG from Cheniere
Energy's Sabine Pass facility in the U.S.--the first project to get all
regulatory approvals. It now plans to use its portfolio of LNG supplies
including the Henry Hub-linked cargoes as a yardstick for negotiating
other deals.
"Today the scenario has changed," Mr. Singh said. "The best
thing is Henry Hub-linked gas prices are now coming to India," which
would give Indian buyers leverage while negotiating prices with other
suppliers.
Over the last few years, Indian buyers have had to buy cargoes
referenced to the relatively high price India paid for Gorgon LNG.
Prices in Asia are often based on existing contracts due to the absence
of a regional benchmark. Asian buyers pay a premium for LNG due to the
vast difference between demand and supply, while prices are more
volatile as they are linked to crude oil instead of gas, unlike in the
U.S. or Europe.
The very idea of North American LNG exports entering the
market has changed the mindset of Asian buyers, Mr. Singh said. And that
is creating a headache for major LNG exporters that have or are making
big-ticket investments in projects.
Speaking at a conference in Kuala Lumpur this week, Russian
gas giant OAO Gazprom's
Deputy Chief Executive Alexander Medvedev and Hamad Al Mohannadi, chief
of Qatar's RasGas, both played down the significance of North American
exports.
Mr. Medvedev said he doesn't consider unconventional gas from
the U.S. as competition, while Mr. Mohannadi said volumes of North
American LNG exports would be limited due to domestic demand.
Qatar is the world's largest LNG exporter and Russia, which
sells most of its gas through pipelines, is drawing up big plans for LNG
exports to reach more customers.
Gazprom
said this week that its ambitious Shtokman gas project in Arctic waters
would now be turned into a full LNG project.
Mr. Singh said the posturing by the big exporters isn't
surprising. "If I were a major [exporter], what would I do? I have to
tell the world that this is a mirage, don't run after it. I have
everything, buy expensive gas from me."