Suez Weekly Market Monitor
ERCOT power prices shifted drastically as the week progressed. Prices were driven by the NYMEX gas market in the early week but retarded late in the week, only to rise again.
Northeast power prices saw a great deal of movement this week as cold weather and high gas prices drove the market prices in an erratic pattern.
PJM power prices also received a boost this week as gas prices and cold weather gave the reported indices a boost. Prices still remain close to their 52-week low.
Natural Gas Market
Natural gas prices saw major volatility this week as prices climbed through midweek then fell off only to climb again late in the week.
Natural Gas Storage: Gas in Storage Decreased 49 Bcf
Working gas in storage was 3,025 Bcf as of Friday, January 5, 2007, according to EIA estimates.
Natural gas production delays drive up prices
Chevron Corp. and Royal Dutch Shell Plc are delaying construction projects from Australia to Nigeria, and that may raise natural gas prices for years to come.
None of the world's biggest energy companies approved developments last year to increase production of liquefied natural gas, which helps heat homes and run power plants from Tokyo to Boston. The main reason is the cost to build LNG plants has tripled in six years, according to Bechtel Group Inc., the biggest U.S. contractor.
Natural gas prices are three times higher than during the 1990s and consumption of the fuel will outpace the 1.6 percent annual gain in energy demand for the next 25 years, according to the International Energy Agency. Gas is also becoming more popular because it emits 29 percent less carbon dioxide than oil and 45 percent less than coal burned in power stations.
"Costs are going up and they're going up far faster than anybody expected," said Andy Flower, a U.K.-based consultant to the LNG industry and a former BP Plc executive. He forecasts that the world LNG shortage will last until at least 2011.
Gas may become more important than oil in the next 50 years because crude supplies are running out faster, according to the Paris-based IEA. Global oil and natural gas reserves were about the same at the end of 2005, equal to 1.2 trillion barrels of crude, according to data compiled by BP. Oil reserves are being burned almost twice as quickly as gas.
LNG sales rose about 11 percent last year to 157 million metric tons, according to Wood Mackenzie Consultants Inc. in Edinburgh. It may jump about 66 percent to 261 million tons in 2010 and another 87 percent to 488 million by 2020, the group said.
Record LNG prices won't fall for "years to come," said Ari Soemarno, president of Indonesia's state energy company, PT Pertamina, until 2005 the world's largest LNG exporter. Prices under multiyear contracts, excluding freight and insurance, range as high as about $10 per million British thermal units in Asia, assuming $60 a barrel for oil, part of LNG price formulas.
Natural gas deposited near industrialized nations is typically transported through pipelines. The challenge is getting gas from the biggest producers -- Russia, Qatar and Iran -- to consumers worldwide who aren't linked by those networks. Now, gas that can't be transported is pumped back underground to force more crude to the surface, or burned off.
Two of the newest and biggest LNG projects have been overbudget and late. Shell's Sakhalin-2 LNG in Russia has doubled in cost to more than $20 billion. Stavenger, Norway-based Statoil ASA's Snohvit LNG plant will cost $9.5 billion, almost 50 percent more than first anticipated in 2002.
Building LNG plants now takes four years, rather than three, because contractors are stretched, said Flower, the consultant.
San Ramon-based Chevron, the U.S.'s second-biggest oil company, last year abandoned its timetable for approving the Gorgon LNG project in Australia. Developing the fields, which hold $400 billion of natural gas, would cost $10 billion and increase world supplies by 7 percent. The driller and partners Shell and Irving, Texas-based Exxon Mobil Corp. are studying ways to reduce construction costs.
The project is "large, complex and faces considerable cost challenges," Colin Beckett, Gorgon area manager for Chevron said in an interview last month.
Politics and violence also hold back LNG developments. In the seas between Australia and East Timor, development of the $3.7 billion Sunrise LNG project has been stalled for more than two years as the nations resolve how to split royalties.
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November 20th, 2018
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