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The Global LNG Gamble

The Geopolitical Risks of LNG
Fortnightly Magazine - March 2005

quoted Qatari Energy Minister Abdullah Bin Hamad Al-Attiya saying about 15 countries-mostly OPEC members-agreed to establish an "executive bureau" to "coordinate interests" in the gas-export markets. (The group is expected to meet in March 2005 at the Fifth Annual Gas Exporting Countries Forum in Trinidad & Tobago.) 8

Whether and when such a cartel might gain the leverage to drive market prices remains to be seen. "We know a lot of the gas in our long-term outlook comes from countries that are members of OPEC, and we can imagine there will be more of a concerted effort among these countries to coordinate gas production," said Michael Stoppard, a Cambridge Energy Research Associates (CERA) director, in a conference call last November. "But gas is different from oil. The payback to banks is too critical for countries to develop facilities and then hold back production."

Additionally, LNG customers in Europe and North America have some leverage against such a cartel, because gas must compete against domestic sources of fuel for heating and power generation. And some utilities-particularly in the Far East-are investing upstream in the supply chain, buying their way into a stronger trading position.

"We're seeing more integration in the business," says Alan Herbst, a principal with Utilis Energy. "Tokyo Electric is now a part owner in the Australian North Shelf venture. They also own LNG vessels. They can use their expertise to get a better price."

On the other hand, imported LNG likely will be cheap enough to drive some marginal gas wells out of the market, and potentially to slow domestic drilling. Cheap LNG could forestall commercialization of coal gasification and biofuels. And while LNG diversifies U.S. gas sources, it does so in a market dominated by a handful of countries, many of which are distrustful or even hostile to Western influence.

"If you have an OPEC for gas, it would include Russia, Iran, Qatar, and probably Algeria," says Dr. Cyril Widdershoven, a security analyst based in Amsterdam. "They have more than 70 percent of the gas in the whole world. That's a lot of eggs to put in one basket." - MTB

Endnotes

  1. Trumbore, Brian, "The Arab Oil Embargo of 1973-74," Stocks and News, 2002.
  2. The Global Liquefied Natural Gas Market: Status & Outlook, U.S. Department of Energy / Energy Information Administration, Dec. 2003
  3. Annual Energy Outlook 2005, Early Release, DOE / EIA.
  4. Utilis Energy USA, LNG: North American Project Almanac 2005, October 2004.
  5. Ibid.
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