US shale oil and gas boom threatens LNG future

As the US shale boom gains momentum many Asian buyers are holding off on LNG contracts, awaiting the cheaper alternative of shale gas.

According to the Financial Times global LNG developments may be held up on the back of contract uncertainty, putting the likelihood of future shortages high.The US shale oil basins.

The US is touted to become the world’s number one oil and gas producer sooner than expected on the back of its shale boom.

According to a new report by the International Energy Agency (IEA), the US is slated to surpass both oil giant Saudi Arabia and natural resources hub Russia as the top oil producer.

In the IEA’s World Energy Outlook released earlier this month, it stated that the US is now on track to become an oil superpower, mainly due to its oil shale focus and is likely to become energy self-sufficient within two decades.

In the wake of this Total’s director of gas and power, Philippe Sauquet, stated that the market can’t agree on a price as it waits for shale, which is expected to be cheaper than LNG.

“A lot of projects today are still on the shelf because they have not succeeded in interesting long-term buyers,” he told the Financial Times.

“Clearly there is a risk [they] won’t get built.”

Other analysts are also pointing to a colder winter and ongoing gas shortages in Northern China  to increase the demand for LNG and lead to higher spot prices and not longer term markets.

 Wood Mackenzie said demand from northern Chinese cities is set to rise tenfold, forcing a greater reliance on the spot markets, which will turn the focus away from longer term contracts.

Colder Chinese winters are set to drive up the LNG spot price (Image: China Smack)

(Image: China Smack)

“China will be forced to rely more on the spot market due to limitations in domestic production and (long-term) contracted supply. More significantly, this winter’s trend is indicative of likely winter gas shortages through the rest of the decade,” the group said.

It also pointed to the rise of unconventional gas as a major source for users

“The pace of unconventional gas development, particularly shale and coal-bed methane, will play a critical role,” Wood Mackenzie’s head for Asia-Pacific gas and power analysis, Gavin Thompson said, “but we still do not foresee significant production of domestic shale before 2020”.

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