Nov. 30 (Bloomberg) -- When Qatar’s biggest natural gas shipment to the U.S. arrived this month, it signaled to Barclays Capital Inc. and PFC Energy that this year’s worst performing commodity investment won’t recover in 2010.

Murwab, a Qatari liquefied natural gas tanker, carried the first shipment to the U.S. from the Persian Gulf nation since June 2008. Its cargo, enough to heat about 9 million homes for a day, added to the largest gas inventories for this time of year since at least 1994, Energy Department data show.

Rising supplies threaten to hurt the record-large $4.2 billion bet in the U.S. Natural Gas Fund LP, while traders hold 51 percent more options contracts to buy gas than they do to sell. The International Energy Agency warned of a glut that Qatar’s energy minister said may last until 2012. Wall Street’s consensus forecast for a 51 percent rise in U.S. gas futures to an average $6.09 per million British thermal units next year is too high, according to industry consultant Schork Group Inc.

“We have more gas than we know what to do with in the U.S., we have more waterborne gas floating around the world’s oceans that doesn’t have a home,” Stephen Schork said in an interview from Villanova, Pennsylvania. Prices this winter will “gravitate toward, and remain closer to $4, rather than $7” for each million Btu, he said.

U.S. imports of liquefied natural gas will rise 34 percent this year to about 470 billion cubic feet and another 40 percent in 2010, the Energy Department forecast on Nov. 10. Global LNG supply will exceed demand for a second year in 2010 as new projects from Qatar to Peru boost output, Sanford C. Bernstein & Co. said in a Nov. 23 report.

Worst Performance

Natural gas for January delivery dropped 6.6 percent to $4.848 per million Btu on the New York Mercantile Exchange today, the biggest one-day decline since Oct. 1. Gas has slumped 14 percent this year, the worst performance among the world’s biggest exchange-traded commodities. Gas peaked at $13.69 in July 2008 and declined to a low of $2.409 in September 2009.

Nikos Tsafos, a senior gas analyst at PFC Energy in Washington, predicts U.S. gas will average $5 next year because of rising domestic production and international supplies of LNG, gas cooled to liquid form for transport by ship. His projection is below the average $5.605 for 2010 monthly futures trading on the Nymex.

“It is hard to see how prices can be much better than the current strip,” Tsafos said, referring to the average of each futures contract for delivery next year.

Low prices will save money for the 57 million American households using gas for heat, who face bills of about $792 each this winter. Governments and energy companies such as London- based BP Plc are promoting gas, which emits about half as much carbon dioxide as coal, to temper global warming.

Price Collapse

New production in Qatar, which has the world’s third- largest gas reserves, is a legacy of decisions made years ago. As gas tripled between 2002 and 2008 and Qatar increased investments, the nation avoided locking in prices for about half of its new LNG in anticipation of further gains, according to consultant Wood Mackenzie Ltd. Instead, the global recession caused prices to collapse 25 percent last year.

“Qatar has had to supply the U.S., even though the returns are absolutely awful, because it is the sink for cargoes that can’t go anywhere else,” said Tony Regan, a consultant with Singapore-based Tri-Zen International Ltd. and a former executive in Royal Dutch Shell Plc’s LNG business. “It’s the worst possible moment to increase production, because the world is in recession and prices are so low.”

U.S. gas production rose last year to its highest since 1974 as the industry exploited extracted gas from new areas.

‘Acute Glut’

Reserves in the U.S. may be 39 percent higher than estimated just two years ago, reflecting improved yields of gas stored in rocks such as shale, the Potential Gas Committee, a non-profit group linked to the Colorado School of Mines, said in a June 18 report.

An “acute glut” is looming during the next five years because of rising shale gas production in the U.S. and Canada, the Paris-based International Energy Agency said in its World Energy Outlook on Nov. 10.

“There is downward pressure on prices next year,” said Biliana Pehlivanova, a commodities analyst at Barclays Capital in New York, who forecasts gas at $5.05 for 2010. “We see a slow drift lower.”

A decline would be bad news for Oklahoma-based explorer Devon Energy Corp., which is betting on U.S. onshore gas production, as well as BP and Anadarko Petroleum Corp., the two biggest producers in the U.S., and countries that benefit from gas sales, such as Norway and Algeria.

Exporters Meet

Qatar will host a meeting of the Gas Exporting Countries Forum of 11 nations on Dec. 9 to discuss sagging world markets. Russia and Iran, which have the largest reserves, are competing to name the first secretary-general, a step in establishing a group that may one day match the price-setting clout that the Organization of Petroleum Exporting Countries has in oil markets.

As the world’s most efficient producer, Qatar can profit at lower prices. The nation can pump 1 million Btu for as little as 15 cents, compared with about $4 for Russia and Norway, according to the IEA. Most costs are covered by so-called condensate, an oil-like petroleum that’s pumped along with natural gas and refined as if it were crude. Qatar then spends another $2.83 to liquefy that gas ready for shipping.

Buyers Turned Away

The country plans to increase annual LNG production capacity 43 percent to 77 million tons by the end of 2010. As prices rose from $2 in 2002, Qatar resisted signing long-term contracts with Kuwait, the United Arab Emirates and India, officials in the countries said at the time. Now, Qatar finds the spot market for excess supplies shrinking.

“By 2013, 2012, the world will see more demand” than supply, Qatar Energy Minister Abdullah al-Attiyah said at a conference in Doha Nov. 7, calling the drop in demand “short- term.” Qatar has the right to divert cargoes away from the U.S. if it finds better prices elsewhere, he said in an interview.

China may become the biggest market for Qatari gas, Fu Chengyu, president of China National Offshore Oil Corp., said in a Nov. 13 interview. Domestic gas companies were told to increase production and imports this month to ease shortages, China’s National Development and Reform Commission said in a Nov. 25 statement.

Asia ‘Key Market’

Shell, which sells more LNG than any other company, sees Asia as its “key market” for growth, Chief Executive Officer Peter Voser said in a Nov. 26 interview in Zurich.

“Any gas prices in Europe will actually have to compete with those prices in the Far East in order to get the gas to Europe,” Voser said.

JPMorgan Chase expects a colder-than-normal winter will revive U.S. prices even as market is now “drowning in bearish psychology,” Lawrence Eagles, head of commodities strategy, said in a Nov. 24 note. The bank kept its 2010 price forecast unchanged at $5.94 a million Btu.

Qatar is leasing import capacity at the Sabine Pass and Cameron terminals in Louisiana and Cove Point, Maryland, to sell excess cargoes to the U.S. Its $1 billion terminal under construction in Texas with ConocoPhillips and Exxon Mobil Corp., called Golden Pass, is unlikely to open before the middle of next year, after a one-year delay, Exxon Mobil spokeswoman Margaret Ross in Houston said by e-mail on Oct. 7.

The Murwab, carrying 216,000 cubic meters of LNG, arrived Nov. 4 at Sabine Pass, according to Qatar Gas Transport Co. and vessel tracking data compiled by Bloomberg. The last time Qatar sent a cargo there was in June 2008 when U.S. prices were more than double today’s level.

Countries that bet on the U.S. market “lost their shirt” this year, Chakib Khelil, energy minister of Algeria, Europe’s largest LNG supplier, said Oct. 7 in Buenos Aires.

To contact the reporter on this story: Ayesha Daya in Dubai on adaya1@bloomberg.net;
Last Updated: November 30, 2009 16:49 EST

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