Shale Gas Global Aims Seen Threatened by Iran ‘Supergiant’

A potential boost in natural gas supply from Iran and Egypt may exacerbate a worldwide glut, reshape the global market and threaten U.S. export ambitions, according to Citigroup Inc.

Projects from North America to East Africa and Australia may be affected as Iran progresses with its “supergiant” South Pars gas field and after Eni SA’s discovery of massive resources offshore Egypt, Citigroup analysts including Anthony Yuen said in a report Sept. 2. The two developments may displace demand for liquefied natural gas in the Middle East and beyond, possibly deterring future U.S. export projects, according to the bank.

“Iran and East Mediterranean, key regions in the next wave of global gas supply beyond the U.S., made major strides in late August,” the bank said in the report. “These developments set the stage for a major boost in gas production and could help remake the global gas landscape.”

Developing an LNG export option for South Pars, as well as the possible boost to Egyptian shipments from Eni’s new Zohr field, will add to the the excess supply from rising production from the U.S., East Africa, East Mediterranean, and Qatar, the analysts wrote.

Houston-based Cheniere Energy Inc. plans to ship its first LNG cargo in December from Sabine Pass on the U.S. Gulf Coast, marking the start of a wave of projects forecast to turn the nation into a major gas exporter. More than 50 applications have been filed to ship gas from the U.S.

Flexible Contracts

LNG project sponsors may make final investment decisions within the next six to 18 months on terminals that would increase global supply by 40 percent, Noel Tomnay, vice president for global gas and LNG research at Wood Mackenzie Ltd. in Edinburgh, said in a statement Thursday.

“Development of even half of this proposed supply could prolong the Asian oversupply to 2025,” Tomnay said.

The oversupply of LNG and drop in prices have also called into question the viability of traditional supply contracts between buyers and sellers, spurring new types of long-term deals with more flexibility on volume, destination and oil-linked pricing, according to the Citigroup analysts.

Prices of spot LNG for delivery to Northeast Asia have slid more than 60 percent since last year, while cargoes to Europe have fallen 37 percent, according to New York-based Energy Intelligence’s World Gas Intelligence publication. Natural gas futures in the U.S. dropped as stockpiles have doubled since April.

U.S. natural gas inventories rose 94 billion cubic feet last week after a reclassification of eight billion from base gas, which is used to maintain adequate storage pressure, to working gas that can be delivered to end users. Supplies totaled 3.193 trillion cubic feet, 4 percent above the five-year average for the period.

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