New gas exports from Iran, Egypt could threaten US export ambitions

By STEPHEN STAPCZYNSKI
Bloomberg

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

Projects from North America to East Africa and Australia may be impacted as Iran progresses with its "supergiant" South Pars gas field and after Eni'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 LNG in the Middle East and beyond, possibly deterring future US export projects, according to the bank.

"Iran and East Mediterranean, key regions in the next wave of global gas supply beyond the US, made major strides in late August," the banks 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 excess supply from rising production from the US, East Africa, East Mediterranean, and Qatar, the analysts wrote.

Houston-based Cheniere Energy plans to ship its first LNG cargo in December from Sabine Pass on the US 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 US.

Flexible Contracts

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 analysts.

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

US natural gas inventories will show a gain this week of 95 Bcf with reclassified supplies, based on Citi’s estimates. TransCanada’s ANR Pipeline Co. said Aug. 31 that it had re-categorized 9 Bcf of gas as so-called working gas storage, adding additional supply to the market.

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