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    Global gas pricing continues on liberalisation path: IGU

Summary

Gas-on-gas competition pricing, where the gas price is determined by the interplay of supply and demand, accounted for 49.3% of global gas consumption in 2020.

by: Joseph Murphy

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Global gas pricing continues on liberalisation path: IGU

Competitive gas-on-gas pricing saw a further growth last year on the back of a shift in LNG imports to gas-on-gas competition (GOG) from oil price escalation (OPE), the International Gas Union (IGU) reports in its Global Wholesale Gas Price Survey 2021. The annual survey, published on July 8, draws data from 94 national-level gas markets that combined account for 98% of total global demand.

GOG pricing mechanisms, where the gas price is determined by the interplay of supply and demand, accounted for 49.3% of global gas consumption in 2020, up one percentage point year on year and compared with 31.3% in 2005. This growth has come at the expense of OPE, whose share has shrunk from 24.4% to 18.6% over the past 15 years.

LNG trade continues to grow ever more flexible, and become increasingly based on GOG pricing. The share of GOG mechanisms in LNG has nearly doubled in the past five years from 25% in 2016 to 44% in 2020. GOG mechanisms gained ground in LNG last year thanks to another sharp rise in spot LNG cargoes, despite COVID-19’s impact on LNG demand.

The split between OPE and GOG pricing in LNG imports is now 56% and 44% respectively. GOG mechanisms are more dominant in pipeline imports, representing 65% of the total in 2020, while OPE only accounted for 25%. In Europe, GOG pricing commands an 81% share while OPE pricing is only 19%.

Bilateral monopoly (BIM) mechanisms took up a further 10% share of global pipeline imports, with usage concentrated in the Former Soviet Union and the Middle East.

Global spot prices fell sharply to $3.24/mn Btu – the lowest average recorded since the IGU began its pricing surveys in 2005. This drop came as the already abundantly-supplied gas market grew more oversupplied as COVID-19 impacted demand. GOG prices dipped significantly to $2.80/mn Btu, while in contrast OPE prices fell to $6.12.

A divergence between Asian and global price trends that began in 2019 began more pronounced in 2020, the IGU found, as spot prices dropped further. In contrast, European prices are now much closer to the world average than they have ever been. This said, the overall picture shows that global gas prices have been on a consistent convergence path since 2005, demonstrating how the market is becoming ever more globalised.

Prices have also become increasingly more market-based over the last 15 years. The share of market-priced gas rose from 62% in 2005 to 71.5% in 2020, while the share of regulated pricing shrank from 38% in 2005 to 28.5% in 2020.

“Greater pricing flexibility and market mechanism optionality means there is more choice and market tools available to consumers, potentially enhancing the role of gas across the global energy system and contributing to energy security,” the IGU’s secretary general elect, Andy Calitz, commented on the survey’s findings. “However, it is a market with tight liquidity. The record low prices of 2020 are now matched by significant highs today.”

Calitz said enhanced upstream and midstream investment in developing gas markets would be crucial “to ensure that energy security is not compromised, and supply continues to be available to meet demand of heating and cooling homes, supplying power systems flexibility, providing efficient and safe industrial fuel, and cleaning up the air and water around the world by replacing polluting coal and oil.”

The IGU's Global Wholesale Gas Price Survey 2021 can be read here.