Gas producers urged to diversify exports

Middle East gas producers should step up economic diversification plans by easing reliance on gas exports as major shale discoveries in the US and other countries could create a glut in the global gas market, the IMF has said.

In a working paper, the Washington-based International Monetary Fund said it saw a gradual decoupling between oil and gas prices, citing such developments in the US, which it expected to become a gas exporter.

It said the decoupling coincided with a significant increase in the production of non-conventional gas, especially shale gas in the United States, the world’s largest hydrocarbon importer and consumer.

The paper said the additional supply has discontinued plans for sizable LNG imports into the US, adding that some even suggest that the US could turn into a “significant gas exporter” in the coming period.

The report, however, noted that in Algeria, one of the world’s largest gas exporters, the impact of spot oil prices on its contracted gas price remains strong but export volumes are under pressure. Oil prices and industrial activity have a significant and important impact on Algerian natural gas prices, it added.

Although long-term contracts and pipelines to main markets ensure demand stability, recent developments in international gas markets and a slow recovery in partner countries has led to declining export volumes, the paper said. Even with a continued recovery of oil prices, Algerian gas priced at US levels and tepid demand would have a sizable effect on Algeria’s economy.The paper, authored by some IMF experts, said a medium-term scenario analysis assumes an increase in non-conventional gas production on the European continent or a global glut in LNG supply. 

Under this constellation, natural gas prices are kept constant in real terms at current US prices and exports fall by five per cent per year. “Our current assumptions imply a significant negative impact on Algeria’s macroeconomic balances. The recent turmoil in the Middle East underscores the relevance of this type of analysis…..the spot price for natural gas at the Zeebrugge hub (in Belgium) fell ten percent in the first quarter of 2011, whereas the Brent oil price moved up sharply as markets priced in the Libyan oil supply disruption….the  development of alternative gas production in Europe is not imminent and would take five to ten years,” it said.But it added that the recent European legislation to liberalise the gas market and the current political unrest in North Africa and the Middle East could bring a boost to recent efforts to develop a European shale gas industry.

“Aside from economic viability, policymakers also have to take environmental concerns into consideration, such as the effects on local drinking water and carbon emissions of a significant move towards shale gas,” it said.“For countries with a significant share of natural gas exports, this paper shows the dangers of relying on a limited basket of exports and the importance of a diversified tradable sector.”

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