Dreams of a seamless global gas market are fading into the background as regional disparities in supply take centre stage. Instead of freely traversing the globe as foreseen just a few years ago, the growing fleet of supertankers that carry liquefied natural gas (LNG) between continents is being diverted from North American shores.
Unable to unload their cargoes at attractive prices in a regional market glutted with gas, the few still arriving there are increasingly dispatched onwards to seek buyers in Asia or Europe. Because of the recent surge in its unconventional gas output from shale deposits, the US has become a "virtual gas exporter", the International Energy Agency (IEA) said last month in its medium-term oil and gas market report. Last year, the US became the world's biggest gas producer, overtaking Russia.
Meanwhile, the Middle East, with 41 per cent of the world's proved conventional gas reserves, is struggling to meet domestic demand. "Despite the large scale of proven gas reserves in the MENA area, only one country, Qatar, can be confident of meeting both its domestic needs and its export ambitions in the medium term," the IEA said. The region's predicament is perhaps the most glaring example of an emerging global trend for gas producers to keep more of their output at home.
"Across the world, domestic market obligations are becoming more apparent to producers, which are now giving increasing priority to their domestic markets," said the Paris-based agency, which advises 28 industrialised countries on energy. Take Peru, which has renegotiated its agreement with the international companies operating its giant Camisea gasfield to ensure the country's rising domestic demand will be met.
Last September, the government ordered the main operating consortium, led by the private US company Hunt Oil, to hold an auction to sell gas to the local market instead of exporting it. A month earlier, the Peruvian minister of energy and mines Pedro Sanchez said Peru had reached an agreement with the group that gas from Camisea's block 88 would be reserved for domestic use until 2015, while the consortium would be allowed to export gas from its block 56.
"I think that with this accord we have the absolute security that the domestic market will remain supplied," Mr Sanchez said. In August, the Spanish firm Repsol agreed to sell gas production from the neighbouring block 57, which it controls, exclusively to the Peruvian domestic market. In Indonesia, fears of a gas deficit have prompted regulators to decree that the nation's Aran LNG plant would stop exports in 2014 while the Bontang plant would supply the domestic market by 2020.
The oil and gas regulator BPMigas also hopes to free up as much as 3 million tonnes a year of LNG to supply planned domestic import terminals when some contracts with Japanese customers expire next year. In Africa, the OPEC member Nigeria has outlined a master plan for gas, setting the domestic market as a priority. That could delay the development of proposed LNG plants, the IEA said. Qatar, which holds the world's third-biggest gas reserves, has extended a moratorium it had placed on further development of its reserves for export until 2015.
Imposed in 2005 to give the government time to develop a better understanding of how rapidly increasing gas production was affecting the reservoir dynamics of Qatar's North Field, which contains more than half the reserves of the world's biggest gasfield, the moratorium was initially supposed to be lifted this year. Instead, it has been extended several times. Doha's concern over the lifetime performance of its biggest natural resource is understandable, but the IEA notes that a moratorium on exports is one tactic through which governments seek to meet their domestic market obligations.
While the North Field moratorium remains in place, Qatar is proceeding with the development of the sizeable Barzan offshore gasfield for domestic sales. Another MENA gas exporter, Egypt, put new gas export contracts on hold in 2008. Its government had already decided in 2000 to allocate one third of the country's then proved reserves for domestic use and another third for "strategic purposes". In November 2008, gas exports to Israel were interrupted over Egyptian concerns that the gas was being sold at less than the market price.
They were reinstated only recently, after the Egyptian supreme administrative court decided in February that the contract with Israel was legal. Cairo agreed in 2008 to phase out some gas subsidies in order to allow producers to sell gas profitably on the domestic market. This year, the petroleum ministry struck a pricing deal with BP and Germany's RWE that is allowing the development of big, deepwater gasfields to move forward.
"This might not be sufficient as Egypt had been trying to renegotiate export volumes downwards," the IEA noted. Given the current glut in international gas markets, international buyers might be happy to co-operate, it suggested. But Egypt's export revenues would be considerably reduced. The UAE also faces tough choices, as it is already a net gas importer and has little hope of contracting for further imports at less than the subsidised prices at which gas is sold domestically.
Further gas development within the Emirates is also likely to be expensive. The production costs for gas from Abu Dhabi's Shah gasfield, for example, has been estimated at US$5 (Dh18.35) per million British thermal units, which is more than triple the domestic price of gas throughout most of the Emirates. Some analysts have suggested Abu Dhabi would try to renegotiate or cancel long-term export contracts with Asia-Pacific customers for the 5.4 million tonnes a year of LNG it exports.
Oman, which also developed LNG capacity, faces a similar dilemma, since its remaining gas reserves are in "tight" reservoirs and will be costly to produce. It has already restricted LNG exports to 80 per cent of capacity and imports gas from Qatar. Kuwait has turned to LNG imports to cover summer gas shortages as it seeks to exploit technically challenging sour gas deposits similar to Abu Dhabi's Shah field.
By contrast, Europe, a major gas importing region, is oversupplied because of its economic slump. "In the Atlantic basin, and in Europe in particular, it is hard to see tight supplies before 2015, despite the rapid decline of European domestic production," the IEA said. That all adds up to more gas staying closer to where it is produced for the next few years, and to the delay of many previously proposed export schemes.