(EnergyAsia, June 27 2011, Monday) — The global oversupply of natural gas could be over by late 2012 instead of 2014/15 as predicted earlier, causing spot prices to spike higher than contract prices in both Asia and Europe, said consultant Wood Mackenzie in its latest ‘Global Gas’ report.

“The global oversupply of gas, which was previously forecast to end in 2015, will now likely end in 2013 and possibly as early as 2012. This oversupply is most manifest in Europe, which has become the market of last resort for liquefied natural gas (LNG) supply,” said Noel Tomnay, Wood Mackenzie’s Head of Global Gas.

The end to oversupply in Europe will coincide with an increasingly tight Asian market, leading both regions to compete for LNG in a tight global market not seen since 2008. As a result, European spot prices could to rise to par or even above contract prices within the next two years, said Mr Tomnay.

At the start of 2011, Wood Mackenzie estimated the European oversupply – the cushion of gas available at prices lower than contract prices – to be over 30 billion cubic meters (bcm) through 2011. However, its latest analysis shows that recent events have reduced this gas cushion, and consequently reduced the extent of oversupply.

These events include political unrest in the Middle East and North Africa, especially the Libyan civil war, and the corresponding Greenstream pipe capacity outage which combined have removed eight billion cubic metres (bcm) of contracted gas from the market, and the March 11 earthquake-tsunami-earthquake tragedy in Japan.

Mr Tomnay estimated that the new Japanese demand along with Germany’s decision to abandon nuclear power will reduce the availability of LNG to Europe by over 12 bcm in 2011.

Wood Mackenzie predicts that in total, these events will completely wipe out Europe’s gas supply cushion by 2013.

But it could get worse as Mr Tomnay said other factors could further reduce supply.

He said: “Unplanned outages have disrupted LNG supply availability in the past, including from Nigeria and also Algeria in the last two years.  The potential for future unplanned LNG outages to disrupt the smooth running of global LNG capacity cannot be ruled out, whether they are technical challenges or the result of recent unrest, as that presently seen in Yemen.

“Should such outages coincide with a cold winter, such an event combined with ongoing Libyan gas supply disruption could remove Europe’s gas cushion entirely by as early as winter of 2012.”