Gas exporters boost capacity

CAIRO: Natural gas producers must boost capacity to meet rising demand for the cleanest fossil fuel but need reliable long-term contracts with users to do it, members of the Gas Exporting Countries Forum (GECF) said on Thursday.

After a few years when capacity increases in exporting countries caused global over-supply and plunging prices, the market has now tightened following Japan's nuclear power plant crisis, political turmoil in the Middle East and rapidly rising demand from new consuming countries.

Many analysts say the gas glut that has blighted exporters since former major importer the United States became self sufficient will soon vanish because of a dearth of new supply.

But the group of some of the world's biggest gas exporters says consumers must commit to buy the low-carbon fossil fuel over the long term.

"Large infrastructure and upstream projects are the key to fulfilling the projected long-term demand supported by long-term contracts, which are the basis of gas markets," Leonid Bokhanovsky, GECF secretary general, said at the opening of the first group meeting since a tsunami smashed into the Fukushima power plant in Japan in March.

Previous meetings of the GECF have been dominated by discussions about how to soften the impact of a shale gas boom in the United States on those that had hoped to sell large quantities of gas to the world's biggest economy for decades.

But demand from emerging markets like India and South America is rising rapidly, while Japan has become more reliant on gas since the shutdown of some nuclear plants in the wake of Fukushima — a crisis that prompted others to review nuclear plans and look to gas as an alternative low-carbon fuel.

"The expected increase in global gas demand means that considerable new gas production capacity will have to added," Egyptian energy minister Abdullah Ghorab said. Exporters could not be expected to spend tens of billions of dollars on new infrastructure without some committment from consumers, he added.

"Flexible pricing formulas and contractual mechanisms that allow frequent review are required to keep a continuous balance among all concerned parties that will allow maintaining a fair and sustainable relationship between sellers and buyers," he told the opening session of the meeting in Cairo.

When supplies were ballooning and prices sagging last year some gas market observers feared the GECF could try to mimic oil exporting group OPEC by cutting supply to push up prices.

But GECF members said late on Wednesday there was no need to consider cutting output of natural gas and any extra supply in the market would soon be gobbled up by growing demand.

Copyright Reuters, 2011