Natural gas experts are floundering for answers about the future of the fuel as the growth of shale gas production in the U.S. continues to flummox expectations.
A pair of meetings in Oran, Algeria this week failed to bring any clarity into the market as gas exporters tried to remain upbeat in the face of U.S. production increases and uncertain global demand.
The Gas Exporting Countries Forum, which groups the 11 top exporting nations, failed to go along with host Algeriaâs proposal to cut back on production in view of global over-supply of the fuel. For one thing, some of the countries worried that a cutback on their part would allow the U.S. and other shale gas producers such as Australia to increase their global market share.
Instead, the organization, which has never had the market clout of OPEC, decided it would try in some vague way to index gas prices, or at least the market price of liquefied natural gas, to oil prices. Gas prices are often locked in with long-term contracts, so that spot prices cover a much narrower portion of the market.
Historically, the ratio of the oil price per barrel to the gas price per million BTU has been about 10 to 1, but over the past year, as gas prices have plummeted 50% and oil prices have risen, that ratio has increased to 20 to 1.
A follow-on meeting in Oran on LNG affirmed the goal of maintaining some sort of link between oil and gas prices, as producers put a bullish spin on the outlook.
Shell executive Guy Outen predicted that demand for LNG would double by 2020. He predicted that demand in Europe, for instance, would increase by 1% a year while local production would decline by 2% a year, according to news agency reports from the Oran conference.
But Houston research firm Tudor, Pickering, Holt came out with a bearish forecast for LNG demand in the U.S., cutting their own estimate of LNG imports in 2010 to 1.8 Bcf/d from 2.5 Bcf/d and saying that the increase in shale production will put further development of LNG terminals on ice for at least five to 10 years.
By. Darrell delamaide