One comment from the International Energy Agency (IEA) in its latest outlook summed up the incredible strength of China on global markets.
China’s demand for oil jumped by an "astonishing" 28% in January compared with the same month a year earlier, the IEA said last Friday.
That was why it has again boosted expected demand for oil in 2010.
The IEA said this demand from emerging markets, especially Asia (China and India) would underpin small rises in demand for oil this year and into 2011.
But it said demand in developed countries would fall by 0.3%.
Out to 2030, the IEA’s latest forecasts show China and India lifting demand as their industrialisation takes hold.
China is already the world’s 4th largest oil producer, and it is also the second largest importer.
The IEA says that over the next 20 years, "China, India and the ASEAN region are likely to see the largest increase in their import burden".
That is Australia’s backyard, and given this outlook, it’s no wonder we are confidently expecting another resources boom, this one driven by Liquefied Natural Gas (LNG) with support from coal.
Australia is already an exporter of LNG and will become the biggest exporter from the 30 member OECD (the rich country club) by 2020 onwards.
LNG projects like Gorgon, Pluto, Wheatstone, all in northern Western Australian waters and coal seam methane projects in Queensland (at least four), will be the building blocks for our surge, which the Reserve Bank regularly points to in its assessments of the economy.
But as rosy as the outlook is and will be for some years, there are a couple of developments that should make us a bit more guarded in our optimism.
Global gas prices have dropped off the back of a plunge in prices in the US, which is now on the cusp of being gas independent.
That’s followed a drop in demand in the US, Europe and Japan for gas (and LNG) because of the global recession and from a sudden and dramatic explosion in new supplies from sources not even contemplated three years ago, or even this time in 2009.
The IEA points out that global oil and gas demand fell last year for the first time since 1981.
That 0.3% fall in demand in developed countries this year is another reminder than energy consumption is weak in the giant economies of the west, and this has taken a lot of price pressure out of the market.
But the really interesting development is the quick rise in what’s called "unconventional gas" supplies.
That’s gas being produced from so-called tight rocks and from shale (shale gas) and some coal seam methane.
So dramatic has been the upturn in possible new sources of gas that the IEA is speculating about an "acute" oversupply of gas emerging.
The search for unconventional gas is surging in Europe and China (where Shell and even some Australian companies, like Arrow Energy) have areas.
Poland, Germany, the UK, France and other countries have huge areas of shale and tight rocks that hold gas which can’t be extracted by conventional methods.
Canada is expected to start producing and exporting unconventional gas from huge fields discovered and now being drilled in British Columbia (near Vancouver).
Unconventional gas is produced by so-called ‘fracking’ where a hole is drilled into the target formation, and then moved horizontally.
Chemicals are pumped down and the pressure lifted and the surrounding rock is fractured and the gas released.
The process involves drilling far more holes than with conventional gas production.
There are environmental questions that are unresolved that could slow some developments, especially in Europe, but not in the US.
So dramatic has been the impact on the US that the industry is now talking about gas self sufficiency for the next century.
The US has slashed imports of LNG (it’s why the projects touted for California by BHP and Woodside have died).
This, and the recession, have led to a dramatic fall in US prices from around $US13 per million BTUs (British Thermal Units, the international measurement of gas) in mid 2008 to less than $US5 a million BTUs at the moment.
That is forecast to fall to around $US3 by the northern summer as more gas is produced and remains unsold.
The recession has helped: gas consumption last year fell by more than 3% globally and an oversupply is now forecast to 2014-15.
These dramatic changes have not featured in any of the forecasts of demand for Australian gas, the growing resources boom and the forecasts for the Australian economy.
It is dramatic.
Already Russia, which was the world’s biggest gas producer, looks like it was overtaken by the US in 2009, with the change being driven by surging production of shale and coal seam gas.
In the US and some European countries, there’s now talk of accelerating the construction of gas fired power stations and closing coal powered facilities to cut carbon emissions and lower costs.
Australia has huge shale reserves in Queensland and there are large areas of tight gas formations around the Cooper Basin in central Australia. The coal seam gas boom in Queensland though is our major source of unconventional gas, but the surge in overseas supplies will have an impact there.
Major exporters to the US and Europe, such as Algeria, Qatar (the world’s biggest gas exporter) and Russia are now looking to ship more gas into Asia, where Australia is already poised to become the major LNG supplier.
The one thing in our favour is the immense appetite for energy in China, and soon India.<
