Mideast LNG producers set to cut exports as local use rises

Middle East liquefied natural gas producers, the biggest suppliers of the fuel to Europe, are set to cut exports for the first time in 20 years amid rising local demand for power generation.Qatar, Oman, Yemen and Abu Dhabi, which supply about 40% of the world’s LNG, exported at 96% of capacity last year, according to the International Group of Liquefied Natural Gas Importers, or GIIGNL, a Paris-based lobby group. That will fall to about 94% in 2012, according to data compiled by Bloomberg. Combined shipments from the region’s four producers of the chilled gas have risen every year since 1992, according to the US Energy Information Administration.The combination of reduced supply and rising demand in the Middle East, as countries build import terminals to meet their power needs, may accelerate the diversion of supplies from Europe to more lucrative markets. Japan, the biggest LNG buyer, is paying a record price to attract LNG after shutting all 54 of its nuclear plants following the earthquake and tsunami in March last year that caused the Fukushima Dai-Ichi disaster.“LNG now is going into Asia and tomorrow it could go into the Middle East,” Thierry Bros, a senior analyst at Societe Generale in Paris, said in a telephone interview. “Those terminals coming on line will come at the expense of somebody else and that somebody else will be Europe.”The four Middle East LNG producers exported 95.6mn metric tonnes last year, the GIIGNL said in its annual report published May 17. They have a combined liquefaction capacity of 100mn tonnes, it said.Yemen LNG’s plant halted for more than seven weeks from March 31 after the pipeline feeding it was sabotaged, cutting almost 1mn tonnes of supply, according to Bloomberg estimates of stoppages based on data provided by operators, partners, third parties involved in the work and people familiar with maintenance. 1mn tonnes of LNG is about 1.2bn cu m of gas, equivalent to Sweden’s annual consumption.Qatar and Oman will reduce output by a combined 5mn tonnes in 2012, the estimates show. Qatar has increased exports every year since 1996 and started its 14th liquefaction plant last year. The country plans no more. Oman’s exports fell 13% from 2007 to 2010 as gas was diverted for domestic use.Middle East electricity demand grew 20% from 2006 to 2009, almost four times faster than the world average, according to US Energy Department data. The region’s gas use may rise to 428bn cu m by 2015 and 470bn cu m by 2020, from 335bn cu m in 2008, International Energy Agency data show. The Mideast’s rate of growth in imports is second only to China, Leslie Palti-Guzman, a New York-based analyst at the Eurasia Group, said in a May 16 email.Demand from the Middle East and Asia will ensure LNG spot cargoes, for near-term supply, sell at a price equal to oil- indexed contracts, which is about $16 to $18 per million British thermal units currently, Bros said in the May 9 interview.Falling Mideast shipments raise the prospect of price increases in Europe at a time when the region is struggling with a deepening sovereign debt crisis. Greece failed to form a government after parties opposed to EU austerity plans gained ground in May 6 elections. Spain is struggling to clean up its banks amid recession and unemployment of more than 20%.Barclays raised its forecast for benchmark UK gas prices this year by 4% this month, citing “unexpectedly large reductions” in LNG shipments. Europe will lose 24bn cu m of imports next year, it said.“The place most likely to lose LNG is Europe,” Trevor Sikorski, a Barclays analyst in London, said by telephone on May 17. “In terms of the market balance, we think over the next two years, it still stands up as a broad tightening.”Kuwait started the Middle East’s first LNG import terminal in 2009, with Dubai following a year later. They shipped in 3.7mn tonnes last year, according to GIIGNL. Bahrain, the UAE, Jordan, Kuwait, Israel and Lebanon have announced terminals as they seek to meet rising demand.“The region remains a relatively small LNG market for the time being, but additional countries will add demand in the next few years,” Palti-Guzman said. “Israel is planning to launch its offshore re-gasification facility by early 2013, Bahrain will start LNG imports by 2014 while Jordan, the UAE, and in the longer term, Saudi Arabia, could also join the group of Middle East nations that import LNG.”Saudi Arabia is exploring for gas to use in power plants to cut its dependence on oil-export income. A Saudi Arabian Oil Co official, who asked not to be identified in line with policy, declined to comment on the nation’s LNG plans.While exports from the region’s current producers decline, Israel and Iraq are on course to meet the shortfall. Israel may ship as much as 10mn tonnes a year of LNG by 2020, according to Palti-Guzman, after Noble Energy Inc develops the Leviathan and Tamar fields that hold about 30tn cu ft of gas. Iraq may export 4.5mn tonnes a year from the south of the country by the end of this decade as well as by pipeline through Turkey, she said.“Israel and Cyprus, and perhaps some of the other countries in the Mediterranean, will have the potential to be significant exporters, but their first priority is to fulfil domestic needs,” Robin Mills, head of consulting at Dubai-based Manaar Energy Consulting and Project Management, said in a telephone interview May 23. Israel probably won’t start exporting LNG until 2017, he said.Unrest in the region also limits supply. Attacks on a pipeline in Yemen have shut the country’s LNG plant three times in the past year. The nation, bordering Saudi Arabia and Oman at the southern tip of the Arabian Peninsula, is battling militants in the province of Abyan.Jordan and Israel have suffered disruption to gas supplies after repeated sabotage on a pipeline from Egypt. State-owned Israel Natural Gas Lines signed an agreement with Italy’s Micoperi to build an offshore re-gasification terminal that may be completed this year, the company said in October.Jordan plans to offer a tender to build an offshore terminal in the Red Sea port of Aqaba by June, a report said in January, citing Minister of Energy and Mineral Resources Qutaiba Abu Qura. Qatar and Jordan set up a technical committee that will study shipping fuel from the emirate, the Petra news agency reported, citing the Jordanian Energy Minister.Bahrain, which previously explored importing gas from Iran by pipeline, wants to award an LNG terminal contract by the end of this year and is in talks to source the fuel supply, Energy Minister Abdul Hussain Ali Mirza said on May 7. The terminal is to be finished by 2014 or 2015, he said. Lebanon is seeking to import gas to counter an electricity shortage.“All Middle East countries are struggling with domestic gas supplies apart from Qatar,” Mills said. “It’s been a surprise for other parts of the world. The Middle East is seen as gas rich.”LNG is gas chilled to minus 162 degrees Celsius (259 Fahrenheit), to put it in a liquid state for ease of transport.