(Bloomberg) -- A potential boost in natural gas supply from Iran and Egypt may exacerbate a worldwide glut, reshape the global market and threaten U.S. export ambitions, according to Citigroup Inc.
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 SA’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 liquefied natural gas in the Middle East and beyond, possibly deterring future U.S. export projects, according to the bank.
"Iran and East Mediterranean, key regions in the next wave of global gas supply beyond the U.S., 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 the excess supply from rising production from the U.S., East Africa, East Mediterranean, and Qatar, the analysts wrote.
Houston-based Cheniere Energy Inc. plans to ship its first LNG cargo in December from Sabine Pass on the U.S. 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 U.S.
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 percent since last year, while cargoes to Europe have fallen 37 percent, according to New York-based Energy Intelligence’s World Gas Intelligence publication. Natural gas futures in the U.S. dropped to record lows as stockpiles have doubled since April.
U.S. natural gas inventories will show a gain this week of 95 billion cubic feet with reclassified supplies, based on Citi’s estimates. TransCanada Corp.’s ANR Pipeline Co. said Aug. 31 that it had re-categorized 9 billion cubic feet of gas as so- called working gas storage, adding additional supply to the market.
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