There will be place in the market for all suppliers

The market of the liquefied natural gas (LNG) appeared more conservative than it was represented to a number of branch experts and reputable international organizations. Developing quantitatively it still gravitates to long-term contracts, and the spot sector faces shortage of methane carriers. Suppliers still prefer generous Asia to more economical Europe. Nearly 75% of capacities of the European LNG terminals continue to stay idle waiting for nothing. Perhaps, «cheap» gas from the USA, which tries to get if not to Asia, then to Latin America, besides the current trade conflict between the States and China beats on prospects of the American suppliers.

 Ten years ago the economic crisis which affected practically all countries stormed. At that time in the USA the flywheel of slate fever was untwisted. Fever, as well as it is necessary, led to overproduction of hydrocarbons, and it, in turn, — to the crisis. Fortunately, there was no global market of gas differently new crisis would strike not in 2014 but in 2012 or even 2011. During the crisis about 150 oil and gas enterprises went bankrupt (generally in the USA). In total as according to the textbook.

Here some branch experts usually have a desire to notice that no slate fever existed, there was a slate revolution and it proceeds still. Like, look at the current indicators of oil and gas production in the States. Most likely, similar experts believe that after crisis of dotcoms the Internet stopped existence, and after crisis in the market of real estate of 2007 in the USA ceased to build houses. But it did not occur. It is enough to tell that the Internet continues to develop and scales of business which is done in the worldwide web are incomparable more today than it was 20 years ago.

The world was included into a century of expensive oil and expensive gas today. That once again it is proved by recent crisis. Development of nonconventional sources of hydrocarbons is a special case of the changes happening in the branch. They, certainly, came for a long time. But they should play a role other than that prophesied to slate oil and slate gas ten years ago.

In the States there is no absolute confidence today that slate fever passed and crisis will not repeat again. Additional problems are created by trade opposition of the USA with China. And all this directly concerns the market of the liquefied natural gas.

 Conservative market

Last year, according to the GIIGNL, the volume of supply of LNG in the world grew on 9.9% — to 399.2 billion cubic meters (according to BP, to 393.4 billion cubic meters). For comparison, pipeline deliveries grew on 3.5% — to 740.7 billion cubic meters. Thus, LNG occupies about a third of the world market of gas.

It is remarkable that in 2014 the volume of the LNG bargaining in the spot market and under short-term contracts according to the GIIGNL, reached 28%. Here it is worth making the essential reservation. «Short-term» in this case is a contract which was signed for up to four years. In Russia such contracts usually call medium-term.

But we will accept the system of estimates offered us. Before the crisis in the market of hydrocarbons a share of short-term contracts grew. This fact was interpreted as the beginning of global changes in the market of gas in general and the liquefied gas in particular. The market leaves from long-term contracts with an oil binding!

It seemed, already not far off there were growth of the offer, the competition of producers, fight for consumers and creation of the real global market of gas. But in 2017 a share of short-term contracts decreased to 27%. Of course, in absolute values all of us equally observe growth, but the fact says that long-term contracts are more preferable from the point of view of sellers and buyers.

There is one more factor beating on spot trade which was brightly shown recently. It is shortage of vessels, more precisely, unavailability of many ship owners to contact changeable («short-term») clients.

At the end of October of S&P Global Platts reported that since September the cost of a freight of methane carriers for spot deliveries grew on 40%. If to compare to last year’s indicators, quotations increased on 3.5 times — to 130-140 thousand dollars per day. The methane carriers serving deliveries under long-term contracts manage approximately twice the cheapest way.

Long-term contracts allow planning better return of investments made in a vessel construction. And it is about the sums which often exceed 150 million dollars. Therefore it is simpler to ship owner to refuse spot freight if there is a prospect to sign the long-term contract. Considering approach of the autumn and winter period for which the increased demand for LNG is characteristic, it is possible to expect further growth of quotations on a spot freight.

Not smaller thirst for long-term contracts is tested also by producers of LNG. Perhaps, it will sound surprisingly, but they too want to have warranties of return of investments. A striking example of such a producer is Qatar to which prophesied a role of the main competitor of «Gazprom» in Europe ten years ago.

 Qatar did not come

In the middle of last decade development of the LNG market seemed rather clear. Huge hopes were laid on the United States. Own production in this country inevitably had to be reduced, and — grow up import. The USA could not cover all the needs for gas at the expense of Canada therefore they inevitably would increase LNG import. And it was for this purpose necessary to construct a set of the LNG terminals.

But it is not enough terminals only. Suppliers who are ready to increase liquefied natural gas production counting on the American market are necessary. Such suppliers were. Among them there was also Russia which assumed to develop Shtokman field with a view to the market of the USA. Fortunately, «Gazprom» oriented in time and postponed implementation of the project, without having managed to enclose in it the considerable sums. But at change of market conditions the project can be quickly unfrozen.

The main player who invested tens of billions of dollars in new productions, being guided by the market of the USA, was Qatar. During the period from 2007 to 2010 this country, according to BP, increased production of natural gas from 65.4 billion cubic meters to 123.9 billion cubic meters. But by this moment it became clear that the States do not need such volumes of LNG as own production not only was not reduced, but, on the contrary, began to grow.

Let’s remind that exactly ten years ago, in 2008, prices of oil in six months failed from 135 to 43.5 dollars per barrel. It was in proportion reflected in the gas price. Here at such successful moment Qatar decided to increase deliveries and completed LNG plants — the potential consumer, impetuously laughing loudly, drills on slate gas and the prices failed. Besides every million tons of capacity of plant on liquefied natural gas production costs about 1 billion dollars. And every of these billions should bring benefit. To make it at low prices it is extremely problematic. But plants already work.

In the circumstances Qatar directed the LNG on the existing markets — to Europe. The offer surplus in the EU led to further reduction of prices of natural gas and to some distortions in perception of reality from a number of the European officials and branch experts. The short-term phenomenon was interpreted by them as a long-term trend: the market of the European Union — the market of the buyer, for the sake of access on which suppliers of energy resources will fight with each other, beating down the price. Besides, it is necessary to build more terminals, if «LNG flows to Europe now».

These simple reflections were followed by numerous speculations which can be reduced to the following: Gazprom will be driven out of the European market by more dynamic and effective producers of LNG. Some analysts, of course, allowed Gazprom to be overcome some time for the EU market by means of a dumping, but prospects of the Russian company appeared the extremely depressing. Actually chances did not remain.

Many consumers, being guided by rather low prices of LNG, hoping to save, demanded partial revision of contracts with traditional suppliers of pipeline gas. Quotations of spot platforms let far and not fully replaced an oil binding.

The fairy tale came to an end rather quickly: in 2010 suppliers began to go to Asia where they were involved by high prices, a growing demand and long-term contracts. And in Europe about 75% of the LNG terminals stand idle since then. Suppliers under these capacities are not present.

In 2011 the situation for the European gas market was aggravated by an accident on Fukushima-1 nuclear power plant. Demand for LNG in Japan grew from 99 billion cubic meters in 2010 to 122.4 billion cubic meters in 2012. For the same period in Japan also the price grew from 10.91 dollars to 16.75 dollars per one million of British thermal units (MBTU). The prices on the European platforms were 5-6 dollars lower.

By the way, in 2017 Qatar, according to GIIGNL, provided 26.7% of all supply of LNG in the world — over 100 billion cubic meters. Only 23.7 billion cubic meters from this volume went to Europe. About 53 billion cubic meters consumed only four countries: South Korea, Japan, India and China. According to BP, in general on the Asian direction there are about three quarters of all LNG made in the world today – 283.5 billion cubic meters in 2017.

As Qatar did not come to the war with Russia, the European slate gas at first and then «ultra cheap» American LNG were appointed as new opponents of Gazprom in the European market.

 As the USA encouraged all

The United States were a striking example for any power scarce region. Production of gas grew in the USA. It led to a collapse in prices in domestic market — three times from average annual maxima. If in 2008 natural gas on Henry Hub cost 8.85 dollars for MBTU, in 2011 this indicator decreased to 4 dollars and in 2012 failed to 2.76 dollars at all. There was the peak of crisis of gas production that year. It became clear to all interested parties that it is a little problematic to develop gas production at prime cost more than 100 dollars of 1 thousand CBM at wholesale price in 70 dollars. But oil came to its aid.

Black gold then actively rose in price again. And even difficult slate oil in production was quite profitable. Slate gas became the accompanying product which production grew after increase in oil production. Getters received necessary time and resources for improvement of technologies.

By estimates of the Norwegian consulting company Rystad Energy, during the period from 2013 to 2015 Americans managed to reduce the profitability price on slate gas on 40%. Just in 2015, according to BP, the American gas production reached a maximum – 740.3 billion cubic meters.

Let’s remind that at the beginning of a decade there were 11 regasification terminals of which seven constructed during 2008-2011 in the States. Perhaps, Sabine Pass belonging to the Cheniere Energy Company was the most powerful of them. It was put into operation in 2008 in the extremely nervous situation — shares of the company of all in a year fell in price ten times.

At the beginning of the current decade export projects started being studied. They not only could provide a sales channel for surplus of natural gas, but also correct a financial position of the companies enclosed in construction of the LNG terminals.

Export projects were studied against the fantastic forecasts occurring at that time about the future crash of the LNG market which had to fall under the pressure of slate revolution. These forecasts were based on the assumption that new mining technologies will provide all large consumers of natural gas with own gas. But export of slate revolution did not happen.

In 2016 the American gas production which started falling off after the failed oil, decreased to 729.3 billion cubic meters and consumption, on the contrary, grew on 7 billion cubic meters (to 750.3 billion cubic meters). Just at the beginning of 2016 after series of disorders earned the first of the plants planned on a wave of slate boom — Sabine Pass. Fortunately for the American domestic market, in the form of LNG so scanty volumes were taken out that this imbalance was almost not reflected in consumers — no significant jump in prices because of export parity occurred. Especially the prices of hydrocarbons in 2016 were extremely small worldwide. Restoration of the prices began only at the end of the year — with a transaction of OPEK+.

 Not to Europe

But contrary to many expectations the American gas did not hurry on the market of Europe that «to exempt it from a gas stranglehold of Russia». The most part of LNG from the United States went on the markets of Latin America and Asia.

In 2017 together with positive changes in the world market of hydrocarbons production of natural gas in the USA started growing again. Obtaining the status net — the export was one of the main conventional markers of success of the American gas production, a certain important psychological border. That is the United States had to take out more gas than buy from Canada and other suppliers.

In 2017, according to Energy Information Administration (EIA), they achieved the desired objectives. The success was saddened a little by its scales. A difference between import and export made only 4.2 billion cubic meters. Thus domestic demand for gas fell to 7.9 billion cubic meters: weather was warmer, than in the previous year. However if to look not at EIA assessment and at data of the annual statistical report of BP, the picture looks as follows: production in the USA made 734.5 billion cubic meters, and consumption – 739.5 billion cubic meters. That is with the announcement of net — export the States hurried a little.

 Bubble to a bubble

According to the International power agency, two thirds of the natural gas made in the USA is a slate gas. And so far as the American slate gas considerably represents today only a by-product by production of oil, it is necessary to watch in the most attentive way the volume of production of black gold. This indicator allows estimating with more or less high degree of reliability, possibilities of the States in the field of gas production growth are how great. Also he allows estimating the potential of the American LNG projects.

Oil production on 2.77 million barrels per day exceeds today crisis minima. Since the beginning of the current year it rose on 1.7 million barrels per day and reached 11.2 million barrels. From this volume to 1.9 million barrels per day rose also production in the Gulf of Mexico and production of the slate oil interesting us in August of the current year, according to EIA, reached 6.2 million barrels per day.

Even in the Russian gas industry the thought, paradoxical by the nature, periodically flashes: no matter, how much is the American gas, it is important that they in principle can extract it. If to look at abstract oil and gas branch in vacuum, such a thought is really reasonable. Then it is possible not to notice the bubble which is inflated in the market and when that with a deafening crash popped in 2014, it is possible not to notice the crisis caused by it in the global market of hydrocarbons, neither the restoration period, nor new problems.

But today the USA taught by bitter experience of mass ruins of the oil and gas companies of 2014-2016 do not divide such escapist approach. The current growth of oil and gas production did not move the American media unambiguously positively. Fears were caused by financial health of («small, private, and effective») the companies.

Income from realization about a quarter of all slate oil is directed only on payments for the credits gathered earlier. By some estimates, the total debt of the American neftegas reaches 300 billion dollars by the present moment. Besides the debt constantly grows as money for construction all of new and new wells is necessary.

Certainly, the USA still have potential of growth of production. And probably they will show new records. But it would be desirable to remind words which we wrote in the Gazprom magazine about problems of slate production in the middle of 2013: «Soon will begin mass bankruptcies of America getters and the large companies will write off multi-billion losses». We were not right in everything. So, the crisis began not at the beginning of 2014, predictably, but in the middle. And production of slate gas nevertheless grows after falling. Indirectly it means that problems which led to the crisis did not get to anywhere. In 2014-2015 the American oil and gas branch already showed the inability to controlled forward development. Perhaps, now rapid growth of production of oil and gas in the USA against debt load of the mining companies will not lead to a new collapse in prices and large bankruptcies.

Anyway, but today the USA increase supply of pipeline gas to Mexico. And only two plants work in the field of LNG. It is the mentioned Sabine Pass on which the fourth turn was started a year ago. The fifth it is planned to start in 2019. Capacity of the plant at the moment is 18 million tons a year. The second enterprise is started in 2018 Cove Point (5.25 million tons). And here the start of the first stage of Freeport LNG plant planned for the end of the current year is postponed for September of 2019.

In general total power of all planned and operating American LNG plants, according to the Power center of the Moscow school of management «Skolkovo», makes about 66 million tons a year (91 billion cubic meters). In 2017 the USA put to the world market 17.4 billion cubic meters of gas in the form of LNG. By EIA estimates, it is supposed that in 2018 supply of LNG from the USA will exceed 30 billion cubic meters, and in 2019 is reached 60 billion cubic meters.

In 2017 MEA predicted that by 2022 the global market will be entered by new LNG production plants. Total power of these enterprises had to make 200 billion cubic meters. But in 2018 the forecast was corrected: by 2023 increase will make 140 billion cubic meters. Thereof 80 billion cubic meters have to provide the USA, 30 billion cubic meters — Australia and 15 more billion cubic meters — Russia. Let’s remind that the total power of the enterprises put in 2017 into operation made 35 billion cubic meters. And the total power of all LNG plants in the world for the end of 2017, according to GIIGNL, reached 503 billion cubic meters (365 million tons).

It is obvious that the current problems with input of new capacities in the USA will lead to failure and the corrected plans too. However, apparently from the data given above, the rated capacity of LNG plants exceeds output more than on 100 billion cubic meters. It reminds that it is not necessary to confuse potential opportunities and real volume of deliveries once again.

Additional problems for the American gas are created by trade war with China.

 To overtake Japan

China today is the most attractive of the growing markets of energy resources. Last year this country imported 52.6 billion cubic meters of LNG, having overtaken on this indicator South Korea (51.3 billion cubic meters). Thus, the People’s Republic of China escaped on the second place among the consumers of liquefied natural gas.

In January-August of the current year China increased import of LNG on 47.8% — to 45 billion cubic meters. The total amount of import of gas for this period made about 79 billion cubic meters. In September growth proceeded — plus 28.3%. In total in a month 10.5 billion cubic meters of natural gas were bought. And it is against the background of own production growing.

According to the forecasts of MEA, next year China can already overtake Japan on import of LNG and win the first place in the world. It is the extremely attractive picture as it opens the widest window of opportunities both for existing, and for capacities under construction. Whether joke: in only two years one country will increase purchases more than on 50 billion cubic meters.

Also, by MEA estimates, by 2023 the Chinese import of gas can reach about 171 billion cubic meters a year. Certainly, substantially this volume will fall to a share of LNG. After all LNG is consumed in the coastal, most economically developed regions of the People’s Republic of China. At the same time China in every way develops northern and the North-West Territories, doing them more and more attractive to local population. This process demands energy carriers. And Russia with the Force of Siberia project, and then and «Force of Siberia — 2″ will appear among those who will supply these regions with natural gas on the pipeline. However, it does not cancel prospects of the Russian LNG in the Chinese market.

Demand for gas in China can grow from 243.5 billion cubic meters in 2017 to 800 billion cubic meters in 2050.

And here on this background the trade conflict between the USA and China is developed with mutual duties on hundreds of billions dollars. It is obvious that such goods as the American LNG couldn’t help suffering from this conflict. If in January-May there arrived 17 methane carriers from the USA to the People’s Republic of China, since June — only four. Let’s remind that in 2017 the volume of supply of gas from the United States to China, according to BP, made 2.1 billion cubic meters.

Nature abhors a vacuum. The new long-term contract for delivery of LNG to the Celestial Empire signed Qatar. According to this document Qatargas will deliver 4.7 billion cubic meters of LNG to PetroChina International Company within 22 years.

And suppliers of the American gas as if in revenge (but, certainly, not) signed the long-term contract with Poland — on 2 billion cubic meters of gas a year. The Polish LNG project initially caused bewilderment by its obvious inefficiency.

 There is always a new enemy

Every five years a new enemy who has to win against Russia in the gas market is made up. Anything similar is present neither in the field of oil supply, nor in the field of coal supply. You will hardly find expressions it seems «the oil weapon of the Kremlin» or «the coal weapon of the Kremlin», but «the gas weapon of the Kremlin» – more than enough. Unfortunately, we should live in this discourse imposed from the outside, but thus we try to call these or those suppliers enemies only in the ironical purposes, thus is consecutive in the materials with figures in hands to explain why there will be no slate gas in Europe, why LNG from Qatar or the USA will not force out the Russian gas.

It is interesting that the professional critics of Gazprom, who two years ago were surely broadcasting to the suspecting nothing students on economics department of the Moscow State University about future competition of the Russian natural gas to the American liquefied natural gas change the shoes on the fly today and imposingly explain that no competition for the European market is present as the buyer seeks to buy gas where is cheaper. And it is cheaper at Gazprom. Thus, professional exposers continue, sellers carry LNG not on the European market where it costs cheaper and to Asia where is more expensive. It is strange that professional exposers needed so much time to understand common truths.

In recent years with development of east direction of deliveries well-wishers found new enemies of Gazprom. The Australian LNG projects which are also focused on the market of China got to their number. Certainly, as a lot of previous «opponents» of the Russian gas, these will lead to economic crash of Gazprom and idle time of its main gas pipelines. Always there will be somebody who contrary to his wish will be appointed as enemies.

But years pass, Gazprom increases its presence in the market of Europe, builds gas pipelines to energy-dependent regions of China and develops LNG production. Demand for energy carriers grows in the world. And there will be a place practically for all suppliers, in any case, for the most effective.