The St. Petersburg Times: Fuel Costs Increase As Russia Curbs Export

Bloomberg

SINGAPORE — Russia is forcing Exxon Mobil Corp. to abandon plans to export natural gas to China. Nigeria is requiring explorers to share output with its citizens. Indonesia will cut sales to Japan.

Countries holding almost half the world’s gas are curbing shipments to meet growing domestic use, hurting importers from the U.S. to Japan. Prices for the heating fuel may rise 50 percent within five years on the New York Mercantile Exchange as a result, said Chris Jarvis, president of Caprock Risk Management in Hampton Falls, New Hampshire. He anticipated the rally in gas prices during the past month.

While raising energy costs, the policies will limit opportunities for Exxon Mobil and Royal Dutch Shell Plc, who are struggling to reverse a five-year production decline of 23 percent in the U.K. North Sea and 42 percent in the U.S. Gulf of Mexico. Natural-gas use is rising 2.5 percent a year, three times the rate for oil, according to BP Plc statistics.

“All the gas is concentrated in places where you don’t have access,’’ said Frank Harris, co-head of the natural gas practice at the Edinburgh-based Wood Mackenzie Consultants Ltd., an adviser to 24 of the world’s 25 biggest oil and gas companies. It’s “a major concern for oil majors,” he said.

In Russia, the energy ministry told Exxon Mobil in August that gas from the $17 billion Sakhalin-1 project off the nation’s eastern coast should be sold into the domestic market, not exported. Russian President Vladimir Putin wants the gas to feed an economy that’s growing 7.6 percent annually. Putin said Saturday that his successor, Dmitry Medvedev, will also be a “nationalist.’’

Exxon planned to build a pipeline to China, where the 10 billion cubic meters a year of Sakhalin gas could meet 18 percent of China’s needs, based on 2006 consumption.

Changing export policies in Nigeria and Egypt threaten projects that would ship 45 million metric tons of liquefied natural gas to the world market annually, equal to about 33 percent current supply, Wood Mackenzie’s Harris estimates. The 45 million tons are almost fourfold larger than the U.S.’s LNG imports in 2006, according to the Energy Department.

Nigerian President Umaru Yar’Adua said last month that a new state-run company would start requiring explorers to sell a portion of output locally. Nigeria, Africa’s most-populous nation, holds the continent’s largest gas reserves, yet only about 40 percent of its population of about 140 million citizens have access to electricity, according to the World Bank.

Total SA, Chevron Corp., Shell and ConocoPhillips have put on hold two LNG projects, at Brass and Olokola, until the government sets its policy on supplies to the domestic market. The gas would have been more than enough to meet India’s annual consumption, based on BP’s statistics.

Caprock Risk’s Jarvis said restrictions on liquefied natural gas exports will tighten global energy markets.

Demand for LNG, or gas chilled for shipment in tankers, is the industry’s fastest-growing business, with growth of about 10 percent a year, Shell and Total estimate.

Compared with fuel oil, natural gas costs 18 percent less, based on the amount of energy in each fuel. Crude prices have tripled since 2002, pushing governments to seek more of the industry’s record profits and limit access to regions that typically harbor natural gas.

© Copyright The St. Petersburg Times

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