The natural gas glut may be confined to the United States and Canada for now, but it promises to reshape how the commodity is sold around the world.
The shale gas boom is having a psychological impact even in markets North American producers can’t access as buyers realize there is plenty to go around, and they are no longer chained to the demands of sellers.
It comes down to the perception of scarcity in the market. The United States no longer needs to import gas, meaning others believe there’s more for everyone else. Further, while vast amounts of North American gas may not be reaching import terminals overseas, foreign buyers now believe gas could transform into a global commodity, easing their reliance on neighbouring producers.
“You have buyers that four or five years ago were panicking and they said: ‘I’ll pay you anything to get gas,’ “ said Nikos Tsafos, a gas specialist at consulting firm PFC Energy. With the United States and Canada swimming in natural gas, forcing prices below $2 (U.S.) per million British thermal units, fear is subsiding. While gas is at 10-year lows in North America, the commodity trades for about $16 in Japan and between about $8.80 and $12 in Europe, he noted.
Even though North American players do not move much of their bounty to Europe, countries like Poland and Britain now have bargaining power they never had before.
Russia’s production may not shrink, but previous forecasts for its growth may now be out of reach. Australia’s growing liquefied natural gas industry, and Qatar, home to the world’s largest LNG producer, could also be dented.
“The biggest effect of shale gas has really been psychological; that it is has changed the view that people have around the world about how much gas is out there,” Mr. Tsafos said.
Russia was the world’s largest natural gas producer until 2009, before the United States took over the top spot thanks to the exploding production in the shale gas industry.
The natural gas market, however, is local. The United States does not ship gas overseas, but LNG from this side of the Atlantic is increasingly becoming attractive. New LNG terminals in the U.K., for example, could curb that country’s reliance on Russia.
“It adds, basically, a new competitor to [Russia’s OAO]Gazprom,” Mr. Tsafos said. “The world is still trying to digest the implications of shale gas revolution internationally.”
Russian president-elect Vladimir Putin urged energy producers from the world’s biggest natural gas exporter to “rise to the challenge” of a changing market as the U.S. boosts output of shale gas. U.S. shale gas production may “seriously” restructure supply and demand in the global market, Mr. Putin said Wednesday in an address to the Russian lower house of parliament.
The U.S. plans to be a net exporter of LNG from 2016, with initial sales of 1.1 billion cubic feet a day doubling after three years.
Poland, which has long been under Russia’s stranglehold when it comes to natural gas and is turning to others in part for geopolitical reasons, also has some wiggle room thanks to shale gas in Canada and the United States. Poland sits on shale gas formations of its own, and is riding North America’s technological coattails. Talisman Energy Inc. and Encana Corp. have both shown interest in the country. China could also trim its reliance on Russian gas, thanks in part to proposed LNG export terminals on Canada’s West Coast, and its own potential for shale gas production.
“I’m not sure [Russia]will lose [its share of the export market] but it may be they just don’t grow as fast as they thought they would,” said Tim Marchant, a professor of strategy and energy geopolitics at the Haskayne School of Business at the University of Calgary. “Because of [Europe’s pipeline network] you can substitute supply. Russian gas needs to be price competitive ... in a way it never has before.”
With files from Bloomberg NewsReport Typo/Error