The Globalisation of Natural Gas Trade: Towards a Unified Price

Unlike oil, gas is not a ‘global’ commodity as it cannot be transported easily from one place to another which caused a heterogeneity in the prices of gas worldwide. The giant price discrepancy between U.S. natural gas and European/Asian natural gas is essentially caused by this transportation problem: Gas sells for $1 in Russia, $3 in the US (due to a massive supply), $8 in Europe, $15+ in Japan, China and Taiwan. Regional pipelines still deliver most natural gas, but as more LNG terminals are built, the shipment of gas in tankers from one continent to another has become possible. Once the problem of the transportation of gas is fully resolved, we will see new markets opening and the emergence of a global market for gas. Mr Michael Economides believes, as demonstrated in the presentation he gave at the Oil and Gas Summit in Beirut on April 22nd and organised by IRN, that with the globalisation of gas trade, prices of natural gas will converge and we will witness a ‘unified’ price. Mr Economides sees the price of natural gas settling at $8. To achieve this unified price, Mr Economides used a model that takes into account distances and volumes of the gas transported. He emphasised on two factors that he believes play a major role in driving the price of natural gas: the first being the increased level of exports from the US and the second being the possibility to transport gas from point A to point B. 

Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean.

Follow Karen on Twitter: @karenayat