The Atradius Gas Market Outlook has said that after decades of little of interest happening in the global natural gas market, it has been showing unprecedented dynamism over the past decade. This has reportedly lead to a divergent gas prices between world regions. However, Atradius expect this trend to reverse. The shale gas revolution in the US and strong growth in international trade of liquid fuels is expected to bring regional prices closer together.
In the outlook Atradius has said that regional prices have rapidly diverged over the past 10 years. Gas prices in the US have been dropping, which is a reflection of the rapidly growing production of gas from shale beds. Gas prices in Asia however have practically tripled over the same time frame and are far the highest in the world. Atradius has said that this is because Asian gas prices are linked to the price of oil which has surged and gas consumption has grown rapidly as a result of economic development. Europe’s gas prices are partially linked to the price of oil, and this explains why they have doubled. However, these trends are expected to change.
Winds of change
Atradius expects change to firstly occur as, in the report, it says that the US will quickly become self sufficient in gas and prices will gradually clime. This is expected to be a result of the very recent shale revolution which has led to a production surge. Imports to the US have halved, despite the power sector having substituted gas for coal. These developments are, according to Atradius, likely to last and the US will start exporting LNG to Asia and Europe. Gas exports are triggered by the price difference between the regions.
Secondly, Atradius expects prices to remain at current levels in Asia assuming Chinese production rises, US exports develop and the LNG cost can be contained. Demand is growing fast and has triggered a boom of LNG imports as local supplies are unable to keep up with the rise in demand. Atradius have said that the surge in demand and the high gas prices have triggered a flurry of investments in LNG facilities, particularly in Australia.
Finally, Atradius expects the gas prices in Europe to eventually rise. Focus on environmental issues has led to an EU wide trading system of carbon emissions and a renewable energy policy in Germany. Perversely, the measures have reduced gas consumption in the power sector and encouraged the use of coal: a much more polluting energy source. Whereas gas production is gradually declining, demand may pick up on the back of gradually improving economic conditions. Atradius has also said that Russia, Europe’s main supplier, is expected to benefit, although commercial and political reasons will push European countries to diversify supplies. LNG imports, even from the US, might play a role over time.
John Lorie, Chief Economist, Atradius said, ‘the shale gas revolution in the US, LNG trade growth and demand surge in Asia are key forces at work. We think US gas prices will gradually climb and Asian prices will remain at current levels. And with some upward pressure on European prices, we see prices in these regions inevitably coming closer, reversing the trend of the past decade and clearly, rising across the board. Over time we expect the cheap energy advantage currently enjoyed by US industry to disappear, and that helps restore the competitive position of European industry. Dependence on Russian gas, moreover, will diminish.’
Adapted by Claira Lloyd
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