Admitting that the underlying trend of very tight markets was disguised last year by generally mild winter weather, Mandil stressed the increasingly global nature of the gas market, with the dramatic growth of LNG linking gas markets to an extent thought impossible a few years ago. This means that deteriorating gas investments in previously separate regional markets can no longer be considered in isolation.

"Cost increases and delays are hitting investment hard in many places, and this phenomenon is not limited to a specific producing region," said Mandil who also voiced his concern that "gas remains vulnerable and expensive."

The review stresses that none of the three IEA gas regions "can now afford to ignore the global picture." Investment to 2015 is becoming a growing worldwide concern as current bottlenecks in upstream production and LNG liquefaction capacity are tightening.

To illustrate the domino effect of gas globalization, the review authors explained that North America is preparing to import LNG from both Pacific and Atlantic producers, while Pacific consumers have sharply increased LNG imports from Atlantic sources because some traditional Pacific suppliers have been unable to meet contracted demand.

IEA Europe will import increasingly large volumes of both LNG and pipeline gas, "so what happens in this region is of paramount importance to all regions of the world," it warned. "If investment in pipeline gas does not develop as anticipated (and there is cause for concern in this regard) pressure on both the Atlantic and Pacific LNG markets will increase."

Tight gas markets

Ian Cronshaw, who designed and managed the review, says the "gas market will remain tight to 2010, possibly to 2012 and even beyond if investments lag." He is uncertain that all the gas investment needed to satisfy growing demand will occur worldwide.

The picture has worsened in the wake of sharply increased construction costs in recent years, notes the review, pointing to a "vicious circle" whereby the cost of obtaining energy, raw materials, and human resources is "increasing the cost of incremental supplies."

Upstream gas projects account for 56% of total gas sector spending, which is $87 billion/year. The review authors wonder whether the high rate of export increases projected for some regions, "especially the Middle East, is achievable in light of institutional, financial, and geopolitical factors and constraints."

The doubts arise from the small number of countries—Russia, Central Asia, Nigeria, the Middle East, and North Africa—that are expected to provide the bulk of incremental gas to be explored, including gas for LNG projects, and where problems are likely to occur. It would then be unlikely that all the required investments in export-related infrastructure would take place.

The review warns that for projects that target first production at the end of 2010-12, final investment decisions must be made before the end of this year. And, even then, progress must be very smooth if deadline are to be met.

PIN/OGJ.COM