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Gulf-Times (Qatar): ‘Gas Opec’ least of consumers’ worries

Published: Sunday, 8 April, 2007, 08:47 AM Doha Time
 
LONDON: The headlines may focus on discussions about forming a “gas Opec” as energy ministers from the key gas-exporting countries gather in Qatar tomorrow, but industry experts say there are far more pressing issues surrounding future gas supplies.

Comments from some oaf the top gas-producing nationa have led to speculation that the Gas Exporting Countries Forum, a grouping of 16 countries with significant gas reserves, could announce the formation of a gas pricing grouping with the clout of Opec.

But that’s unlikely to happen any time soon, analysts say. More relevant to nervous gas consumers are the practical and political problems that threaten the reliability of future supplies from the world’s biggest gas producers in the Middle East, Africa and Russia, they say.

Since the GECF was established in 2001, most industry observers have seen it as little more than an ineffectual talking shop.

“We have no idea what it means to be a member of this forum, what these guys are actually going to talk about, whether they can make any decisions,” said Professor Jonathan Stern, director of gas research at the Oxford Institute For Energy Studies. “There’s just a huge amount of speculation and absolutely no substance.”

Several of the countries that are most vocal about forming a group aren’t the most significant members. “The people who are shouting loudest like Venezuela and Iran have no gas to export,” Stern said.

Nor does the forum have a good record of creating a consensus between member countries, said Morten Frisch, head of Morten Frisch Consulting.

“Last year, they didn’t agree on an agenda,” Frisch said, and as a result the meeting didn’t take place. The forum tomorrow is at least the third attempt to hold a meeting this year, he added.

But if gas consumers needn’t worry just yet about the pricing power a gas organisation could give to countries like Russia or Iran, there are real issues that threaten to constrain supplies and drive up prices in the near future.

Rising equipment costs and labor shortages are hampering new gas developments all over the world.

“Delays in production and export projects continue,” said Dan Simmons, gas analyst at the IEA.

New production of liquefied natural gas – seen as the great hope for diversifying gas supplies in Europe and the US away from over-dependence on too few sources – have been particularly affected, Simmons said.

“Last year, we saw lower-than-anticipated production of LNG. There is also a slowdown in investment. Only one new LNG project has been sanctioned in the last year,” he said.

The countries with the three largest gas reserves – Russia, Iran and Qatar – are all experiencing problems with gas production that could mean their exports fall short of expectations in the coming years.

Russia, which already supplies Europe with more than a quarter of its gas, is facing soaring gas demand at home and significant decline in production at its existing gas fields, said Stern.

With over a quarter of the world’s remaining reserves, Russia isn’t short of gas. Russian gas monopoly Gazprom has plans to develop massive new fields in the Yamal region of northwestern Siberia, but Stern said the development is large and technically challenging and its timetable for gas production to begin there in 2011 is very optimistic.

If Russia cannot get this field up and running in time and slow the increase in domestic gas consumption, its ability to supply Europe’s rising gas import demands will be in question, Stern said.

Iran is facing even greater obstacles to fulfilling its export potential. It has almost 15% of the world’s reserves, but its gas industry is in bad shape. Iran is currently a net importer of gas, and has struggled to meet even modest export commitments to neighbors like Turkey.

The major foreign investment Iran needs to develop the LNG production facilities to export its huge reserves is unlikely to be forthcoming, given current political tensions over its nuclear programme and the recent capture of 15 British sailors, said Simmons of the IEA. The captured sailors were released on Wednesday.

Oil majors Royal Dutch Shell and Total have been in talks with Iran’s government over LNG projects, but project deadlines have been repeatedly delayed and the US has warned companies not to do business with a regime that is defying them over its nuclear programme.

“The sanctions regime that seems to be emerging is yet another nail in Iran’s gas export coffin because I just can’t see how anything is going to be financed by anybody,” said Stern. Most industry observers say Iran is a decade or more from becoming a significant gas exporter.

Qatar, with just over 14% of the world’s gas reserves, is the Middle East’s gas success story. In just over a decade it has come from nowhere to be the world’s largest exporter of LNG. Huge and complex gas liquefaction projects have been delivered largely on time and on budget.

However, the geology of Qatar’s North Field, the largest gas reservoir in the world, is proving less straightforward than originally expected. “They need to be very careful as to how they produce from this field,” said Frisch.

Qatar declared a moratorium on new projects on the North Field in 2005 to study the impact that gas production is having on its performance. The extension of the study’s deadline to 2012 from 2007 is a sign that developing an optimum plan for production is proving much more complex than expected, Frisch said.

But perhaps the largest single constraint on future Middle East gas exports will be domestic consumption, which is growing rapidly. “It rivals China and India in terms of the rate of growth,” said Simmons.

Three sectors are competing for Middle East gas supply, domestic power production and industry, injection into oil fields and export. “Countries can’t do all those things at the same time,” said Simmons.

Economies in the region are booming, but a large part of the problem is profligate use of gas. “People in the region are used to looking at natural gas as a waste product. It is difficult to change their mentality,” said Frisch.

Gas prices have been kept artificially low by governments. Oman has limited reserves, but has entered into a long-term agreement to supply its energy intensive industry with gas at the price of $0.80 per million British thermal units, said Frisch, far below international market prices.

Local consumption is already constraining exports from the region. Oman is unable to fully utilise the capacity of its LNG production facilities due to insufficient feed gas, Frisch said.
“I cannot see any new LNG being exported from Qatar beyond the 77mn tons being developed by 2015. There is growing pressure on Qatar to make gas available to the Arabian Gulf at large,” he said.

Looking further ahead, the International Energy Agency forecasts that Europe will get two-thirds of its gas from imports by 2030, the US will go from being self-sufficient to importing 16% of its gas, and demand in the emerging Asian economies will continue to grow.

The confluence of these factors may be that future gas supplies fall far short of expectations, regardless of the existence of an Opec-style group. – Dow Jones Newswires
 

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