Natural Gas Trading to Resemble Coal, Not Oil

Oil & Natural Gas

Credit: Flickr / Joakim Aleksander Mathisen / CC BY 2.0

New discoveries as well as rising demands of natural gas are change its position from a regional market to global market. Natural gas trading is likely to become more like coal, rather than oil.

Natural gas is always hooked to the oil market through long-term contracts as earlier, gas and oil were produced mainly by the same exporters and used in the same industries.

Subsequent to new bilateral contracts between exports and their customers based on regional gas exchanges, gas will be steered by specific regional prices rather than global benchmarks, for instance oil’s Brent crude.

Axa Investment managers said: “A new relationship is developing between oil and gas prices.”

Due to rise in supplies of natural gas from countries that don’t sell oil overseas and increasing demand of gas in Asia, trading of liquefied natural gas (LNG) has boosted a bit.

With such a prospect, natural gas will become the world’s dominant fuel for electricity generation, next to coal following the shift of gas trading away from pipelines towards a seaborne commodity.

Axa cited: “More LNG terminals …mean liquid fuels can come from anywhere.”

Above situations point out developments that previously took place in the coal market, which appeared as a globally traded commodity in the second half of the 20th century as many suppliers began serving hubs of big demand in America, Europe and Asia.

LPG trading is relatively immature and younger market. Therefore, its prices fluctuate broadly by region.

For LNG imports, Asian importers have to pay almost $14 per British thermal units (mmBtu) although North America earns advantages because of its lowest gas prices at around $3.5 per million mmBtu.

Russia, Norway and North Africa import natural gas to Europe through pipeline and charge around $11 per mmBtu.

In the latest World Energy Outlook to 2035, the International Energy Agency (IEA) said: “Rising LNG supplies are likely to lead to increase price connectivity between regions and a degree of price convergence.”

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