WASHINGTON—As the U.S. emerges as the main driver of global LNG growth and China moves to the top position among importers of natural gas, trade representatives from the two countries might want to consider the impact of their trade dispute, the head of the International Energy Agency (IEA) said June 26.
Trade disputes constitute bad news for both importers and exporters, said Fatih Birol, the IEA’s executive director, at the World Gas Conference.
Governments would do well to take an overall view and act in the best interest of their countries, he said, as trade tensions continued to escalate between the U.S. and China, as well as with other countries.
“I know that there are trade disputes,” he said. “It is not first time there is a trade dispute and it will not be the last time.”
Birol’s remarks came as the agency released its “Gas 2018” market report, which projected that China will become the world’s top importer of natural gas next year and will account for 37% of the growth in global gas consumption between 2017 and 2023. China has threatened tariffs against U.S. crude oil, LNG and coal in retaliation for U.S. tariffs on $50 billion of imported goods from China.
Other global trends that Birol identified were:
- The world’s industrial sector will surpass the power generation sector as the main driver of growth for natural gas. This comes from emerging markets in Asia that use gas as fuel and as a feedstock from chemicals and fertilizers; and from North America and the Middle East to feed expanding petrochemical businesses; and
- The U.S., already the world’s top producer of natural gas, accounts for almost 45% of global growth in production and almost 75% of the growth in LNG exports.
The future of the natural gas market appears bright, Birol said, but two principal challenges—price competition and methane leaks along the value chain—need to be addressed.
Gas, he said, competes on price in the markets for emerging economies not only with coal but also with renewables that are in many cases subsidized by governments.
“What I can tell you is that demand is from emerging countries,” Birol emphasized. “It doesn’t come from Japan, it doesn’t come from Europe. It only comes from emerging countries.”
Those countries may prefer cleaner natural gas, he said, but it is unfair to blame governments seeking to expand their countries’ electricity markets for choosing coal if it is significantly cheaper. If that is the case, then gas exporters are at risk of losing market share.
While LNG is plentiful and production is growing at the moment, the IEA projects a much tighter market by 2023. Liquefaction capacity is expected to increase by 30% between now and then but pipeline capacity will expand more modestly.
The IEA also sees the greater role taken by the U.S. as challenging the traditional norms of the LNG trade. Supply contracts may give way to flexible-destination cargoes and gas-indexed pricing, which contrast with fixed-delivery, oil-indexed pricing.
Cheniere Energy Inc. said on Monday it would buy natural gas from Apache Corp.’s Permian assets using a price mechanism linked to the liquefied natural gas (LNG) it ends up selling and not the typical U.S. gas benchmark.
Ostensibly intended to guard energy companies from investor activism, the president’s executive order also carries some risk for the sector.
Oil and gas producer Apache said on April 23 it would delay natural gas production from its Alpine High assets in the Permian Basin due to "extremely" low prices.