Dr Farrukh Saleem Capital suggestion In 2008, the spot price of US-produced natural gas was $12/mmBTU. In 2012, the spot price crashed to less than $2/mmBTU before rebounding to around $4/mmBTU in 2013. According to The Economist: “The biggest breakthrough the energy industry has seen in decades, hydraulic fracturing combined with horizontal drilling, has released unprecedented quantities of gas from this shale.” Over the past three years, technically recoverable US shale gas resources have gone up from 353 trillion cubic feet to 827 trillion cubic feet – that’s a 100-year supply of natural gas. Over the past two months, Asian LNG prices have plunged 25 percent. Conclusion: Natural gas prices are falling like ninepins. From a historical perspective, the global price of natural gas “has been 10 times cheaper than crude oil”. Right now natural gas is “approximately 35 times cheaper”. Lesson: If we are going to buy LNG from Qatar, it will not be in Pakistan’s interest to peg LNG’s price to the price of crude oil. Gas Authority of India Limited (GAIL), the state-owned enterprise, has contracted to buy 3.5 million tons per year of LNG from the US at a landed cost of $10.50/mmBTU (price is pegged to Henry Hub). GAIL has also contracted to buy 7.5 million tons of LNG from RasGas of Qatar at around $13/mmBTU. For the record, world LNG estimated August 2013 landed prices are: India $14.10, UK $9.46, Spain $10.08, Korea $15.75 and China $15.25. The spot LNG price now hovers around $14/mmBTU. LNG is fuel of the future. Pakistan must not miss the boat; we must get into the LNG game right away. To begin with, we need to invest in developing a world-class LNG supply chain. In the US, the number of unconventional natural gas wells has gone up from 18,485 in 2004 to over 35,000 in a matter of just two years. By 2016-2017, the US is going to glut the global LNG market. GAIL has become the first Asian entity to have contracted US LNG. For Pakistan, importing Qatar’s LNG at $18/mmBTU (plus $2.50/mmBTU for Engro) will make Pakistani products highly uncompetitive when India’s cost for US LNG would be $10.50/mmBTU. In Australia, Chevron and Exxon-Mobil are pouring in $160 billion to liquefy coal-seam gas into LNG-and then export it to the world. By 2018, Australia would be the largest exporter of LNG. LNG producers in Qatar are dying to lock in long term buyers. North America, East Africa and Australia are all looking for buyers. It’s a buyers market out there. Pakistan needs a short-term and a long-term LNG strategy. Over the past decade, LNG spot and short-term market “has increased exponentially”; the spot market now stands at around 30 percent of the total global market. The UK, Japan, Korea, Taiwan and China have all been buying LNG spot cargoes at around $14/mmBTU. Over the short term, Pakistan ought to do the same. Over the long haul, LNG at or under $10/mmBTU is the trend. The writer is a columnist based in Islamabad. Email: farrukh15@hotmail Twitter: @saleemfarrukh
Posted on: Sun, 04 Aug 2013 10:17:52 +0000