August 24, 2012 / 1:31 PM / 7 years ago

Analysis - Rise of global LNG challenges gas monopolies

LONDON (Reuters) - Liquefied natural gas (LNG) is now the fastest growing fuel in the world and spurred by new discoveries is set to challenge decades-old monopolies of traditional oil and gas powers in the Middle East or Europe.

Finds in East Africa and Australia are expected to help push natural gas above coal as the second biggest fuel source by 2030 and later could challenge oil.

These discoveries not only pose a challenge to LNG export leader Qatar but by delivering the super-cooled gas by ship they also threaten the longstanding dominance of pipeline powers such as Russia or Norway.

“In the long-term, these new discoveries could create a global gas market and reduce the power of incumbent monopolies,” Thierry Bros, energy analyst at French bank Societe Generale, said.

Despite a global economic downturn, LNG trade volumes grew by nearly 10 percent in 2011, with global output climbing to 240.8 million tons, according to the International Group of LNG Importers.

In physically traded volumes, gas already has coal in its sights, with LNG cargoes worth $250-260 billion (158 billion pounds -164 billion pounds) transported last year in barrels of oil equivalent making up about a third of gas sold.

This compared to physical oil cargoes worth about $2.2 trillion, according to Reuters research.

LNG in particular is bolstering gas, with annual growth rates of 6 percent expected between 2011 and 2020, according to Cedigaz, an international association for the natural gas sector.

AUSTRALIA GOING TOP

Australia is likely to overtake Qatar’s 77 million tonnes per annum (mtpa) as the world’s biggest LNG exporter by the end of the decade, shipping over 60 mtpa of LNG abroad by 2017 and as much as 100 million tonnes by 2020, analysts said.

In East Africa, the U.S. Geological Survey estimates that over 250 trillion cubic feet (7.1 trillion cubic metres) of natural gas may lie off Kenya, Tanzania and Mozambique, compared to 186 trillion cubic feet in Nigeria, Africa’s biggest energy producer.

Both Australia and East Africa stand to benefit from growth in sales to Asia, already the world’s biggest LNG market.

Asia consumed nearly two-thirds of LNG output in 2011, a figure likely to rise given the region’s rapid economic growth, the opening of new import terminals and Japan’s crippled nuclear industry following the 2011 Fukushima incident.

Much of the demand will originate from China, which has so far failed to agree price terms for a gas pipeline from Russia, and is instead focusing on the development of LNG terminals.

China’s current gas demand is on a par with Britain’s around 100 billion cubic metres (bcm) per year, but this figure is set to rise to over 300 bcm by 2020 and to 500 bcm to 600 bcm by 2030, the International Energy Agency (IEA) has forecast.

LNG is also set to grow in Europe as Britain’s North Sea gas reserves dwindle and central Europe looks to reduce its almost total dependency on piped supply from Russia.

FLEXIBLE SUPPLIES

Natural gas has so far been dominated by pipeline supplies, with major players such as Russia, Norway and Canada laying long pipes to export gas to neighbouring markets.

With the rise of Australia, East Africa and potentially the United States as gas exporters, and new customer markets emerging as well, this balance will shift more towards LNG.

That’s partly because LNG delivered by ship can serve areas with the highest demand, addressing shortages and oversupplies at relative short notice.

“The interest in LNG is that in some places you have a surplus of gas while in others there as shortages,” said Rob West, a senior European gas analyst at Bernstein.

With new sources available to gas markets, analysts say natural gas will be one of the world’s top two energy sources by 2035, behind only oil, jointly accounting for about 60 percent of global demand.

The IEA says that natural gas could overtake coal as a global fuel source before 2030 and even come close to oil by 2035, challenging the dominance of institutions like OPEC. [ID:nL5E8GT494]

CORPORATE INTEREST

The growth of LNG is also attracting new players such as PVM, a leading oil broker, which recently opened an LNG desk, while big independent trading houses such as Geneva-based Mercuria are expanding their LNG businesses.

Australia and more recently East Africa are also attracting European and North American energy majors scrambling to get a share of the expected gas bonanza.

In terms of LNG exporting volumes, most analysts say that the top corporate players by the end of this decade will be Royal Dutch Shell (RDSa.L), Exxon Mobil (XOM.N), Chevron (CVX.N), BG Group BG.L, Total (TOTF.PA), and BP (BP.L).

Russia’s Gazprom (GAZP.MM) and Norway’s Statoil STL.OL , so far mostly active in the pipeline business, also plan to expand in LNG markets by developing their own export terminals and buying into overseas assets.

Additional reporting by Andrew Callus in London; editing by Jason Neely

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