New World Energy: LNG Rise Changing Geopolitical Game
Last month, in London, U.K., an LNG event was organized on behalf of the Government of Alberta by Glacier Media (the parent company of the Daily Oil Bulletin) and the Canadian Society for Unconventional Resources (CSUR) to provide a special briefing to around 140 European energy investors and stakeholders. The DOB over the next few days is providing LNG-themed editorial coverage based on this event.
The world is changing, says Ryan Pereira, with natural gas and LNG starting to replace crude oil as the main negotiating tool on the global stage, and nations are adjusting accordingly to this emerging energy market.
“One thing that has been very interesting over the past few years is that oil was always the geopolitical tool, or negotiating weapon, of choice,” the global director – Gas & LNG, Gaffney Cline & Associates, said at a recent event in London, U.K. (hosted on behalf of the Alberta government) to discuss the scope of Canadian LNG growth.
However, he added, over the last two or three years there has been a transition, with natural gas exports more and more serving in that metaphorical arsenal as the instrument, which was traditionally the forte of crude. “Gas and LNG are playing an increasingly important role in today’s geopolitical world.”
Speaking during the recent PETRONAS International Energy Speaker Series event in Calgary, Maria van der Hoeven, former executive director of the International Energy Agency (IEA), highlighted the impact of the shale revolution in the U.S., and what America’s newfound natural gas abundance means in terms of global hegemony.
“While the U.S. is expected to become the world’s number one LNG exporter by 2025, China will be the number one importer,” she said, adding this shift has overarching macroeconomic and geopolitical implications. “Some people are raising the question as to whether this could mean a disengagement of the U.S. from Middle Eastern affairs.”
Although Van der Hoeven questions whether China is willing to or even can replace the U.S. as the hegemonic superpower in the Middle East, she noted the Chinese are making lots of investments in that region.
In terms of what has emerged over the past few years in terms of global exports of LNG and gas, Pereira noted, countries such as the U.S. and Mozambique have high resources available, and Australia has massively ramped up its exports, although there are cost challenges that question the profitability of exporting gas from there.
“We have seen the increasing rise and significance of Russian competition into both Europe and, of course, the growing markets in Asia, in particular China,” he said during the Glacier Media (the DOB’s parent company) and Canadian Society for Unconventional Resources (CSUR)-hosted U.K. event. “And then, it seems like month-on-month there are new announcements coming out from Qatar.”
Beyond Middle Eastern affairs, Van der Hoeven suggested greater U.S. energy independence as China needs more energy definitely impacts U.S-Chinese trade relations. “As I said, the U.S. will be the number one exporter while China will be the number one importer, and so it will be natural to expect an increase of U.S. energy sales to China. Wouldn’t this actually soften the trade imbalance [President Donald Trump] seems to be so worried about?”
The world is complex, she added, and energy will likely become an increasingly important factor in the U.S.-China trade war, with America rerouting energy exports away from China as a result of tariffs.
And then there’s Canada
Canada has talked about a potential LNG industry for many years, but in 2019 the country finally seems to be making massive strides to bolster the industry and give Canadian natural gas uplift, according to Pereira, rooting its LNG to markets and putting prospects of overseas exports in a much more positive light. Potentially, he suggested, in the medium term at least, Canadian natural gas could even become more competitive globally than U.S. gas.
“We see considerable advantages coming from Canadian LNG and the lower costs that could bring,” Pereira said, adding that while the U.S. has emerged currently as the marginal cost-competitive LNG source, substantial upstream pressures force its LNG prices to increase in the short to medium term. There are potentially higher freight costs for U.S. product, as well as bottlenecks around key U.S. shipping routes such as through the Panama Canal.
Meanwhile, in Canada, he added, the LNG industry is seeing improvements on the supply chain, with shareholders collaborating on infrastructure and pipelines. Further, he noted, investors caring more about where their LNG originates as they think about carbon neutral cargos bodes well for Canada’s natural gas product. “Most importantly, in terms of a reliable Canadian source, we’re seeing supply diversity and an uplift from that.”