RIYADH – Gas prices are likely to continue outperforming oil prices in the near future, QNB has said in a report, though the two commodities exhibited opposite trends in 2012. Global oil production grew more rapidly than consumption, whereas gas demand growth outstripped supply. This meant that average gas import prices rose much more strongly than oil prices. The relative trend is likely to continue in the near future, even though global demand for petroleum products is likely to soften in the months ahead, QNB said. It forecast that gas demand growth in Asia will continue to lead the global market. Demand growth in China and Southeast Asia is likely to more than compensate possible reduction in other parts of the world. Data recently released in BP Annual Review of World Energy shows that global oil production grew by 1.9mn bpd in 2012, an increase of 2.2 percent over the previous year and one of the largest increases in recent years. However, consumption grew by less than half this amount (0.9mn bpd), as higher demand in emerging markets was partly offset by declining consumption in Europe and the US. The US provided the main contribution to production growth (1mn bpd), driven by shale oil developments, which helped deliver the largest annual increment ever in the US. Libya followed closely behind, as production moved back toward pre-regime levels. Qatar was also one of the major contributors, providing a 6.7 percent share of the growth in global supply, largely from condensates linked to higher North Field gas production. In contrast, gas consumption growth of 7.1bn cubic feet per day (cf/d, equivalent to 1.3mn bpd of oil) outstripped production growth (6.1bn cf/d or 1.9 percent). East Asia led the demand growth, particularly given the impact of Japan's shutdown of most of its nuclear power plants. The US was also the largest contributor to gas production growth, producing an additional 3.0bn cf/d, nearly half the net increase in supply. Other major contributors to the growth were Norway (1.2bn cf/d), Qatar (1.1bn cf/d) and Saudi Arabia (1.0bn cf/d). The main declines in production were in Russia, the UK, India and Indonesia. These factors were supportive of gas prices. Whereas the average benchmark Brent oil only rose by 0.9 percent in 2012, most major benchmark gas prices saw much stronger increases. QNB's weighed average basket of the three main benchmark gas import prices (Japan, Europe and the US) increased by 15.6 percent, led by the Japanese LNG import price which averaged a record $16.6/mnBTU (million British thermal unit), while European gas imports reached $11.5/mBTU, the second highest on record after 2008. The only exception was the US, where prices declined owing to the surge in domestic production. However, US prices have been picking up recently and averaged $5.9/mnBTU in the first quarter of 2013. An important development in the gas market was that the volume of LNG exports (about a third of total traded gas) experienced its first ever annual decline in 2012, falling by 0.8 percent to 241mn tons per year (tpy). On the demand side, there were significant shifts in the customer base. Japan's LNG imports grew by 8.7mn tpy, as gas substituted for lost nuclear power generation. By May 2012 all of Japan nuclear plants had been closed for maintenance. Net demand growth in the rest of Asia totaled 9.2mn tpy. Conversely, LNG demand fell substantially in the UK (by 8.2mn tpy), as it substituted LNG with pipeline gas, mainly from Norway. LNG imports also fell in the US, France, Spain and Italy. The geographical shift in demand from the US and Europe to Asia is beneficial for LNG exporters, according to QNB Group, given that LNG in Asia sells at a considerable premium compared with most other regions. Asia represented a record 69.3 percent of global LNG imports in 2012, compared with 21.1 percent for Europe and just 1.5 percent for the US. — SG/Agencies
