Deliveries of liquefied natural gas (LNG) from the US to Europe will be able to weaken the dependence of gas prices on oil, a press release of the international ratings agency Fitch says.
According to analysts, the emergence of US liquefied natural gas as a competitive alternative for European and Asian customers, combined with an oversupplied market, should drive more convergence between natural gas prices at major hubs and weaken the link between gas and oil prices.
The agency notes that the first shipment of US liquefied natural gas to Europe arrived at the end of April and it is unclear how many more shipments will arrive in the near term, but according to Fitch, they should increase liquidity in global LNG.
Vestnik Kavkaza asked experts how realistic is a prospect to untie gas prices from oil and what consequences it may cause.
Sberbank CIB analyst Valery Nesterov, speaking with a correspondent, confirmed that deliveries of the US liquefied natural gas "will lead to an increase in trade turnover, will encourage competition in the global LNG market, where overproduction is expected." "As a consequence, the share of gas from non-long-term contracts, with reference to the Japanese oil cartel or petroleum products in Greece, will increase and spot trade will expand. And spot trade has an exclusively market-based pricing. In general, it is safe to say that a period has started when gas prices will depend less and less on oil prices with every passing year. And this process will only intensify in the future, with an introduction of the US LNG to the market," the expert said.
Speaking about the fate of gas prices, Valery Nesterov noted that until now gas prices were determined by oil prices, because gas markets were regional, not global. "There was the North American market, the European market and so on. And the expansion of LNG trade sort of integrates the markets. Gradually we are witnessing an emergence of a global gas market, yet in its undeveloped form, which we did not have in the past. The initial gas market was dependent and tied to the price of competing energy sources, primarily to oil, even coal. Now this market is becoming competitive, as the oil market is," Valery Nesterov explained.
As Energy Deputy Director at the Institute of Energy and Finance, Alexey Belogoryev, noted in an interview with a 'Vestnik Kavkaza' correspondent that interconnection between LNG supplies from the United States and the change in pricing for gas in Europe is rather conventional, although the changes actually take place.
"The main vector is aimed at the transition to independent pricing, without reference to any substitute products. Usually it is oil products. Half of the gas trade is tied with pricing. The same process has ted to gain momentum in the North-East Asia in recent years. These two markets are the key to the international trade. Therefore, the whole process of transition to independent pricing of gas on the basis of stock exchange quotations is on its way and it will continue. Another thing is that it is unclear how it will end,'' the expert said.
Answering question how soon the gas market will manage to reach the level of the oil's sector development, he expressed confidence sure that this issue is questionable due to a high proportion of pipeline gas supply, which is about 65% of total shipments,'' Alexey Belogoryev said.
