BP: U.S. Gas Production Expected to Soar, Fueling Fight for Global Market Share

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Global natural gas supplies are predicted to soar over the 2015-2035 period, and competition is expected to be fierce between pipeline gas and liquefied natural gas (LNG), BP Plc (NYSE: BP) (London, England) predicted in its annual long-term global energy outlook.

In unveiling the BP Statistical Review of World Energy June 13, Spencer Dale, BP's group chief economist, said the worldwide gas market was "muted" in 2016. Global gas demand increased 1.5%, or 63 billion cubic meters (Bcm), a far slower pace of demand growth than the prior decade, when it had increased 2.3% annually. Worldwide gas production was essentially flat in 2016, the fuel's weakest production growth in 35 years. Gas production in the U.S. fell about 2.5%, or roughly 1.7 Bcm, last year, the first time U.S. gas output had fallen since the shale revolution began a decade earlier, Dale noted.

Click on the image at right to see BP's estimate of global gas supply and demand for 2015, 2016 and the 10-year average preceding 2015.

Flat global gas production and weak demand growth in 2015 and 2016 went hand-in-hand with declining prices, Dale continued: Prices at Henry Hub were 5% less than they were in 2015, while prices in Europe and Asia fell 20% to 30%, as those regions were increasingly able to arbitrage between pipeline-supplied gas and tanker-delivered LNG.

Although global demand was up only a small bit in 2016, that masked strong demand growth in Europe, the Middle East and China, BP said. Gas' enhanced competitiveness vis-à-vis coal, and weakness in nuclear and renewable energy, caused gas demand in Europe to swell 5.9%, or about 28 Bcm in 2016. Gas use also rose by 3.5%, or 19 Bcm, in the Middle East last year. China's demand for gas rose 7.7% in 2016, or about 16 Bcm. Demand fell last year in Russia and Brazil, as both nations experienced a surge in hydropower generation, the BP study noted.

Last year was also the first year when LNG facilities began exporting gas, and as a growing clutch of LNG export terminals come online, those facilities are expected to shake up markets. Australian gas production soared 25.2% last year, about 19 Bcm, as several of its LNG export terminals began operating.

Click on the image at right to see BP's estimate of LNG exports and imports for 2015, 2016 and the 10-year annual average for decade preceding 2015.

In a global webcast, Dale told an estimated 5,000 attendees that "2016 was the first year of the growth spurt we expect to see in LNG, with global supplies set to increase by around a further 30% by 2020. That is equivalent to a new LNG train coming on stream every two months until the end of this decade--quite astonishing growth."

"Looking at the growing market for LNG," Dale continued, "it's striking that the increasing availability of supplies has prompted a number of new countries, including Egypt, Pakistan and Poland, to enter the market in the past year or two. These new entrants were helped by the increased flexibility afforded by plentiful supplies of FSRUs (Floating Storage and Regasification Units)."

Over the 20-year period spanning 2015 to 2035, BP projected U.S. shale production will increase more than 40 billion cubic feet per day (Bcf/d). Global consumption, by sector, will see a continued surge in use by the Power sector and among non-Power industrial users.

Click on the image at right to see BP's prediction of future gas supply growth, by region, and demand growth, by sector, over the 2015-2035 period.

Dale observed, "As the importance of LNG trade grows, global gas markets are likely to evolve quite materially. Alongside increasing market integration, we are likely to see a shift towards a more flexible style of trading, supported by a deeper, more competitive market structure. Indeed, this shift is already apparent, with a move towards smaller and shorter contracts, and an increase in the proportion of LNG trade which is not contracted and is freely traded."

He pointed to Europe as "a particularly interesting market" in the context of supply and demand trends. "On the one hand," he said, "Europe's large and increasing need for imported gas, combined with its central location amongst several major LNG suppliers, means it's often highlighted as a natural growth market for LNG. On the other hand, Europe's access to plentiful supplies of pipeline gas, particularly from Russia, means LNG imports are likely to face stiff competition."

"The economic incentives in this battle of competing supplies are clear," Dale commented. "Just as with OPEC's response to the emergence of US tight oil, Russia has a strong incentive to compete to maintain its market share in the face of growing structural competition from LNG supplies."

The potential to meet demand growth through LNG imports should be a countervailing force in case Russia wants to use the threat of cutoffs to exert undue influence on European countries. Although BP projects continued growth of Russian pipeline gas exports to Europe, it also forecast a sharp rise in LNG imports through 2035.

Click on the image at right to see BP's assessment of historical sources of gas supply to Europe, and a projection of how they could change over the coming two decades.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at https://www.industrialinfo.com.