Piped Gas Trade Fell by Record on Lower Russia Flow, BP Says

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Global trade of natural gas via pipelines fell the most on record last year as Russia halted exports to Ukraine and shipments declined from the Netherlands, the European Union’s biggest producer, according to BP Plc.

Exports of the fuel through pipelines slipped more than 6 percent last year, the biggest drop since the oil major started compiling the data in 1989, BP said in its annual Statistical Review. It’s only the second time global gas trade retreated. Russian shipments declined by 12 percent, while those from the Netherlands tumbled 30 percent, according to the data.

Russia halted supplies to Ukraine for six months last year due to a price dispute between the two nations. Gas output in the Netherlands fell the most globally last year as the country’s government decided to limit output from the Groningen field, Europe’s biggest, after earthquakes caused by gas extraction damaged buildings in its most northern province.

“The weakness in pipeline gas trade was compounded by the dispute between Russia and Ukraine, which resulted in Russia’s gas exports to Ukraine being turned off between June and December last year,” said Spencer Dale, BP’s chief economist. “Lower exports to EU and Ukraine caused Russia’s gas production to fall by over 4 percent.”

Pipeline exports also dropped as consumption in the EU fell 12 percent last year, the biggest decline on record, BP said. Reduced demand in the 28-member nation bloc dragged down global consumption, which grew by 0.4 percent compared with a 10-year average of 2.4 percent.

Mild Weather

“Does 2014 tell us something about global gas growth going forward?” Dale said at a presentation of the report at BP’s office in London. “I don’t think it does because a very large driver of the weakness of global gas consumption in 2014 was a European story and it wasn’t a structural European story, it was a mild winter.”

While last year’s demand growth was the lowest in almost 20 years, with the exception of the financial crisis, global production gained 1.6 percent, causing prices to drop globally, BP said. Northeast Asian spot liquefied natural gas prices fell 45 percent in 2014, as U.S. gas on Henry Hub slipped 32 percent and U.K. fuel on the National Balancing Point fell 28 percent, the most since 2009, according to data from exchanges and World Gas Intelligence.

U.S. Exception

“This general weakening in gas prices also coincided with a further narrowing of the differential between regional gas prices, reflecting the increasing integration of global gas markets,” Dale said. “The main exception to this story of global gas weakness was, of course, the U.S., where gas production increased by over 6 percent.”

The U.S., the world’s biggest gas producer, accounted for almost 80 percent of the increase in global gas output. Domestic supplies, with production growth mainly stemming from the Marcellus and Utica shale deposits, helped boost U.S. consumption by almost 3 percent last year, BP said.

Increased supplies of liquefied natural gas following the start of production in Papua New Guinea helped compensate in part for the weaker pipeline gas trade, BP said. Global LNG trade increased by 2.4 percent, taking a 33.4 percent share of total gas trade, according to the company.

LNG supplies will still surge over the next five years as projects that have already obtained a final investment decision will go ahead, Dale told reporters after the presentation. A second wave of projects could be affected if oil prices are still low in two to three years, he said.

“We still expect to see that big increase in LNG supplies,” he said, commenting in supplies from projects already approved. “Our sense is that although they may be pushed out by a year or two, you don’t stop these projects. That growth spur comes through, it may come through with a year or two delay, but it comes through.”

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