Global Forces Drive Natural Gas Supply and Demand
As much as recent natural gas industry dynamics are influenced by price, the reality is that the global market always is truly driven by supply and demand. Where gas reserves reside, where energy demand is needed, and how supply is being transported all tell a more holistic story of the market’s dynamics. The current disparity in supply and demand is giving natural gas buyers the upper hand in negotiating contracts and is affecting how organizations throughout the value chain are planning for the future.
The 2017 Strategic Directions: Natural Gas Industry Report reflects how global forces are impacting all sectors of the natural gas industry:
Trade Relations: Saudi Arabia, the United Arab Emirates, Bahrain and Egypt recently severed diplomatic, trade and transport ties with Qatar, the world’s biggest supplier of liquefied natural gas (LNG). The sanctions highlight the potential impacts of interrupted or blocked supply routes around the Middle East and decreased volumes of LNG on the market.
Growing Population Centers: Projections for population surges in regions such as India, Southeast Asia and Sub-Saharan Africa will increase demand in both developed and developing areas that will require new infrastructure to receive, process and transport gas supply.
U.S. “Energy Dominance”: The presidential administration is pushing increased capital expenditures toward LNG export terminals. A policy shift signaling support for the United States to sell more energy to new markets such as China could address the current market oversupply; this and other trends point to the United States emerging as a major LNG supplier.
Discovery of Natural Gas Reserves: The discovery of natural gas reserves in resourcerich regions such as East Africa is creating opportunities to develop projects that integrate more power domestically and boost local economies.
These factors seemingly play into how the industry views the market, with 90 percent of survey respondents naming economic/demand growth as a top issue. Low gas prices and price stability, and gas supply reliability round out the top three natural gas market challenges.
As the industry plans for differing geopolitical scenarios that could affect these top issues, forward-thinking leaders are aligning businesses to prepare for the long-term ramifications. For LNG transport, if shipping channels are blocked because of regional tensions, are there alternate methods of moving supply to buyers? Will buyers backfill supply by purchasing from the spot market? Will emerging supply leaders such as the United States and Australia capitalize by providing more flexible contracts to buyers? While these may be seen as challenges, the industry is keeping a close watch on global trends and strategically mapping out business opportunities from each scenario.
Please rate the importance of each of the following issues and/or challenges related to the natural gas market.
Supply Reliability Hinges on Infrastructure Investments
Seeing the Global Picture
Whether in the United States or abroad, the industry leaders most poised for future growth in the natural gas industry will be the ones who see the broader global picture. Regardless of their role in the supply chain, organizations will be subject to impacts from geopolitical crises and increasing foreign competition. The next few years could bring about drastic changes, including who the dominant market players are and what technology is being applied to bring supply to demand centers. Analysts still predict a market rebound within the next 10 years. However, those who do not engage in proactive planning, especially in regard to long-term projects, risk being unable to capitalize on big opportunities down the road.
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