The supply overhang was partly due to increased unconventional gas production in the US, and a ramp-up in LNG production, Klooss said at the 5th Annual LNG World conference in Perth, Australia.
But it was also a reflection of the recession, which meant that in 2009, for the first time since World War II, global GDP fell, he added. While the energy complex as a whole saw demand fall, natural gas consumption was hit hardest, he said, down 2.1% year on year globally in 2009.
The growth in US production had pushed LNG toward Europe, which in turn had reduced its pipeline imports by 13% in 2009 compared with the previous year, as buyers chose to take relatively cheap LNG instead of oil-indexed pipeline gas, Klooss said.
The shift toward LNG imports into Europe had increased flexibility in the market there, he added. It has also increased the gap between spot prices and long-term pipeline contract prices, he said.
Pipeline suppliers such as Gazprom and Statoil "did make concessions to customers" on minimum levels of take or pay volumes in contracts, Klooss said, and have allowed spot indexation for any volumes above take or pay levels.
But the the "spot discount" is still so strong that buyers still have an incentive to take only minimum pipeline imports, he said, creating pressure to renegotiate contracts.
Meanwhile, the recovery in demand in Asia has significantly affected the outlook, Klooss said.
Overall, BP forecasts that Asian LNG demand will grow 4.5% annually till 2020, meaning that by the end of the decade total LNG imports into Asia will be up by 101 billion cubic meters of gas per year (equivalent to more than 70 million mt/year of LNG).
The increase in volumes is still "mostly uncontracted," Klooss said, though half will "likely come from Australia and Papua New Guinea." That will mean that demand and supply of gas globally will increasingly be concentrated in Asia, he added.
It will also give Asian buyers increased power in the market, he added. "Will it mean Asian buyers then demand different contract terms? Will LNG contracts move towards containing a spot element?" he said. Costs would provide some answers to those questions, he added, since new LNG projects have tended to be more costly, limiting the possibility of cheaper long-term contracts.
"European oil-indexed contracts are coming under real pressure, but in Asian LNG, that's not happened just yet," Klooss said. "At current spot price levels, there is an incentive to shift to spot, but then there are questions over the costs of projects and getting support for them."
There is a "persistent discount" in spot prices versus term LNG contracts, Klooss said, which is likely to continue for the next few years given the ramp-up in LNG production. He added that while there would be a further jump in LNG supplies in 2014-15, demand is likely to have recovered by
then.
"There is a risk that spot prices could dip again then," he said, but overall the outlook for the market would likely be improved for that period.
China Chemical Weekly: http://news.chemnet.com/en/detail-1411716.html
