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This month’s publication, Natural Gas: Great Expectations, takes a look at the natural gas resource base, and the coming LNG export boom, to determine whether many of the hopes that now surround this fossil fuel can be fulfilled. Reserve growth in North America is quite robust, and that will only improve as US prices rise from abnormally low levels. While some of the most wild forecasts are not likely to come true–for example, that the world is entering a golden age of gas; or that natural gas is practically unlimited in supply–it’s certainly true that a long cycle for natural gas is getting underway. To this point, China and the US are emerging as the major drivers of demand:
China’s consumption of natural gas is not even 10% of its total consumption of coal. That’s no surprise. After all, China now consumes half the world’s coal. And despite the slowdown in the growth rate of China’s demand, that country is nothing less than a colossus of coal. But what about natural gas? China currently imports about 30% of its natural gas. Half of this comes by pipeline, and the other half come via LNG (liquefied natural gas). But on an absolute basis, China’s use of natural gas remains small. Indeed, in 2012, China imported only 20 billion cubic meters of LNG, about the same as Spain. This is certainly far less than Japan’s LNG imports last year, of 119 million cubic meters. Shall we conclude therefore that China is an unlikely demand driver, for natural gas? On the contrary, for it appears China’s growth of natural gas demand is starting to accelerate.
The August issue also includes the next round of changes to the Model Portfolio:
Demand (for oil) in the OECD continues its decline. But examination of OECD inventories through data provided by IEA Paris shows no new, directional movement of any kind. The recent strength in oil has much more to do with the long overdue convergence of West Texas Intermediate (WTI) and Brent as flows of oil from the interior of the US finally moved more smoothly to the Gulf Coast, where they can be refined for export. This closing of the gap appears to have been amplified by some momentum chasing in the futures market. For now, our exposure to oil supermajors, via IXC, will suffice. Instead, this month’s portfolio changes will continues to focus on the power sector.
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