The Natural Gas Supply Chains

Coming Re-Alignment Of The Natural Gas Supply Chains On A Global Scale, And Its Impact On Downstream Petro-Chemical Manufacturing

Coming Re-Alignment Of The Natural Gas Supply Chains On A Global Scale

Traditionally, natural gas market in Europe was served by Russia, while Asia got most of its natural gas from Middle East. That is why prices of natural gas in Asia were much higher than anywhere else in world (between $11 to $12 /m BTU).


About More The Natural Gas Supply Chains

However, things are changing rapidly and total supply chain on a global level for natural gas is realigning in front of our eyes right now.

Let us start with some very obvious developments and then connect dots with other developments that are less so.

Then let’s circle back and look at supply chain implications of these developments on downstream petro-chemical businesses.

Step of The Natural Gas Supply Chains

Firstly, sanctions against Russia are changing landscape of natural gas supply in Europe. One of side effects of these sanctions is that Europe will be granted its wish not to be dependent on Russia.

Secondly, a development which is equally well known is abundance of natural gas in North America, especially in United States.

Fracking and shale gas have created a boom in USA where prices of gas plummeted a few years ago to nearly 30%-40% of prices elsewhere, and have stayed depressed since.

Not too long ago, despite pleas from US manufacturers who use natural gas as feedstock, USA has granted permission to export natural gas. The first terminal in USA is nearing completion at a place called Sabine Pass.

Thus, they will start exporting by end of 2015. It will be exporting a very large amount of natural gas to wherever demand is. And guess where demand will be?

It will be in Europe, because they want to stop buying from Russia (for simple reasons listed above). “We’re going to represent 25 percent of gas sold to Spain.

We’re going to feed enough gas to England to heat 1.8 million homes.” Says Souky, CEO of Cheniere Energy Inc and Sabine Pass Liquefaction.


Source of The Natural Gas Supply Chains

Coming Re-Alignment Of The Natural Gas Supply Chains On A Global Scale

Cheniere Sabine Pass LNG site – source: Wikipedia

Hence, Russia is starting to find a permanent market in China. They have already made a deal which lasts 30 years to sell natural gas for $400 billion.


“The agreement, signed at a summit in Shanghai, is expected to deliver some 38 billion cubic metres of natural gas a year eastward to China’s burgeoning economy, starting around 2018.”

“But financial details are a “commercial secret”, so we don’t know how much he had to give away to get it.

Agreement of The Natural Gas Supply Chains

Certainly China needs gas to help it cut its coal-fired smog levels, and it wants to diversify supply. But it had luxury of time in which to negotiate, something Mr Putin was short of.”

“The perceived motive for deal is that Russia needs a second market for its gas, so it can face up to European sanctions.

Given that “Power of Siberia” pipeline won’t start pumping gas into Chinese factories until 2018 at earliest, its economic effect on European crisis will be limited.”

On other hand, a new terminal and new export from Australia have come on line in Gladstone in Queensland at cost of $60 billion.

“The first shipment of liquefied natural gas (LNG) has left Gladstone in Queensland bound for Asia.”

“It’s culmination of several years of an intense activity on Curtis Island where three separate facilities, costing an estimated $60 billion, have been constructed.”

“Construction started on Queensland Curtis LNG (QCLNG) project in 2010, first in world to turn coal seam gas (CSG) into transportable LNG.”


They can start their first export today, right now going to Asia. But, as natural gas demand in Europe expands and natural gas prices in Europe and Asia are starting to equalize, Australia’s gasoline can be also sent to Europe.

Coming Re-Alignment Of The Natural Gas Supply Chains On A Global Scale

In end, what will happen?

The natural gasoline prices around world will start equalizing. Right now there is a huge unbalance. In USA,  price is only about $4 / m BTU whereas in Asia, it is around $11 to $12 / m BTU and Europe about $9 / m BTU.


As new Supply Chains realign themselves, prices in three nations should stabilize and equalize.

At the same time, US will become the major exporter of natural gasoline for the first time in its history and Europe will be the biggest importer of the US.

It will bring North America and Europe closer together because of energy dependencies in the same way it will cement Russia and Asia’s relationship in the future.

Today, Australia is aligned with Asia but they could eventually align with both Europe and Asia in the future.

Besides the obvious geo-political readjustments based on energy market realignment what else will change as a result?

The biggest implication is for the downstream petro-chemical and manufacturing businesses.

A diverse range of industries such as plastics, polypropylene, resins, chemical fertilizers, industrial explosives, shipping, and a constellation of associated supply networks will have to totally re-think

their global supply chain strategies in the coming 1-3 years simply because all the old assumptions in these industries will eventually be thrown out of the window.

The supply of gasoline and availability of ships will again, drive the manufacturing footprints in these industries. Plants are not difficult to dismantle and move, though the overall costs can be a big factor in manufacturing footprint redesign.

Author of The Natural Gas Supply Chains




Vivek is the Global Supply Chain Strategist and Author who works globally with large and mid-size corporations to FIX their Business-to-Business Networks in order to their multiply profits.

In that last 14 years he created several new breakthroughs in Supply Chain – including business transformations led by SCM 3.0. His more than 400 projects have spanned approximately 84 countries on five continents, with clients ranging from fortune 500 companies to innovative green technology companies.

Get free extracts of his books and see why thousands of executives at the world’s leading corporations trust Global Supply Chain Group to build brilliant business-to-business network strategy.

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