The World Gas Conference wrapped up on Friday on a more optimistic note than three years previous in Argentina.
Then, in the depths of the global downturn, sentiment was sombre, and the potential of the United States’ shale revolution to be a global game-changer was not properly appreciated.
If there was any doubt in Buenos Aires, the message was loud and clear in Kuala Lumpur.
In little over a decade, hydraulic fracturing in the US has unlocked the vast potential of shale, which had previously only been thought of as a petroleum source rock, rather than a reservoir.
As the spread between US Henry Hub and Asian oil-linked prices widened, so did the realisation that something fundamental in the gas market had changed.
The ‘shale spread’ has increased the opportunities for lucrative arbitrage, with several proposed liquefaction projects racing to ship cargoes to gas-hungry markets in Asia.
The prospect of Henry Hub-linked contracts reaching the Asian market has caused a stir among producers whose projects are based on oil-indexation.
While US West Coast projects threaten to weaken the oil-link in Asia, the development of liquefaction plants in the East could apply some downward pressure on European prices – something not lost on Gazprom, which staunchly defended the oil-link during proceedings.
“Prices in East Asia are significantly higher than the European level, not to mention US prices, which are actually behind a protective barrier of government policies aimed at using natural gas as a means
to restart the American economy,” Gazprom’s Deputy Chairman Alexander Medvedev claimed in his keynote address.
Hence, the question of how much US LNG would reach the markets arose frequently during proceedings, evoking both optimism and anxiety in different quarters. Perhaps unsurprisingly, Cheniere Energy’s stand was consistently one of the busiest.
Delegates also enthusiastically discussed the next potential ‘game-changer’: China’s unconventional prospects. While the consensus seemed to be that China would take longer to bring its resources to market, 81% of 438 delegates polled during the conference by GL Noble Denton believed China would become the world’s largest shale gas producer within the next 18 years.
Were this vast quantity of gas to be successfully tapped, China’s need for imports could be significantly eroded – Wood Mackenzie told Interfax that Chinese LNG demand will likely flatten out after 2025 as a result of a shale boom in the country.
In the meantime, the liquefaction race is on.