World natural gas markets undergoing transformation

By OGJ editors
HOUSTON, July 21 -- Natural gas markets are changing worldwide, and although the pace of change varies by region, the overall challenge for energy companies is to deliver a market model with investment incentives, customer demand, reduced costs, and competitive prices, PricewaterhouseCoopers LLP said in a recent report.

"Certainly for all mature market players, gas no longer is the plentiful fuel source that it used to be, and there is a price to be paid for ensuring the continuance of its supply," PWC said. "Policy makers and industry leaders alike must establish who will pick up the tab and how to create the right environment for its timely payment."

For instance, the mature markets of North America and Europe represent the highest consuming continents, but indigenous supplies for both are decreasing toward a production-supply shortfall.

Strategic investment in pipelines linking Russia and the UK or Canada and the US follow the traditional transportation options while LNG offers an alternative for companies to commercialize reserves currently considered too remote to be economical (OGJ, June 23, 2003, p. 72).

Meanwhile, both pipelines and LNG require significant investment, said the report entitled "Going Global—change and challenge in the gas market."

Liberalization
The process of change began in the US and has spread via the UK first and then to the rest of Europe, spurred by the European Union gas directive (OGJ Online, Oct. 19, 2001). As markets mature, the potential for more dynamic trading conditions are emerging.

"Regulatory policy within liberalized markets has so far been directed at the squeezing of companies to gain greater efficiencies and deliver the benefits to end consumers, yet today, we have a situation that is squeezing potential investors in the gas chain and leading to a growing supply-demand deficit," said Michael Hurley, PWC partner.

"This situation needs a rethink, and ultimately regulatory policy must address the need to create sufficient security of supply and so facilitate increased levels of investment," he said.

In the US, wholesale gas markets have moved toward greater liquidity with the Henry Hub as the main trading point. In Europe, the emergence of a specific gas market has been slower.

Gas contracts remained oil-product driven in Europe, where long-term take-or-pay supply contracts still are common. The UK has established short-term spot trading because its energy markets are fully liberalized and end-customer choice is a reality, PWC said.

"Gas hubs are, however, beginning to emerge in continental Europe. Zeebrugge, on the Belgian coast, which currently has the capacity to handle 40 billion cu m of natural gas/year, has emerged as the first gas trading hub in the region," the report said.

Zeebrugge's importance is expected to grow because it represents the confluence of two principal European gas routes. One route runs east-west from Siberia to Scotland while the other runs north-south between Norway and southern Europe.

European companies will require greater flexibility given changing market conditions, but long-term deals still could survive even though liberalization of gas markets has reduced their role.

"A hybrid solution may evolve, as was the case in the oil market of the 1970s, whereby long-term contracts are still used, but these concerned fixed volumes only, with prices floating to reflect the end market," the report said.

For instance, some UK players have committed to long-term volumes in which the contracts outline a netback arrangement according to the market price.

As markets liberalize with new contracts and new supplies, "a key challenge will be to avoid a roller coaster of supply-demand imbalances," the report said.

Martha Carnes, a PWC global gas partner, said trading and risk management are ital for companies seeking to limit their volatility exposure.

"Attracting new capital within this market is increasingly difficult, and companies active in the gas sector must convince the investment community to accept a lower-return model, and to do so, they'll need to offer clearer explanations of the lower associated risk profile," she said.

Russia
"The importance of Europe to Russia's gas sector, and indeed, the Russian economy, means that, ultimately, the impact of EU liberalization will be felt further east," the report said. Russia provides 30% of Continental Europe's total gas supplies, and 65% of Russia's total gas exports go to Europe (OGJ, Mar. 10, 2003, p. 21).

"It is a vital hard-currency source for the Russian economy. Investment in new Russian exploration, production, and transportation will be critical in the coming years, with a consequent need for outside finance," PWC said.

The Russian market will follow European markets in seeking spot trading, the report said, adding that steps toward this already are in place.


"Certainly for all mature market players, gas no longer is the plentiful fuel source that it used to be, and there is a price to be paid for ensuring the continuance of its supply," PricewaterhouseCoopers said. "Policy makers and industry leaders alike must establish who will pick up the tab and how to create the right environmental for its timely payment."


Related Articles

MARKET WATCH: NYMEX oil price bounces back up somewhat

02/06/2015 Crude oil prices on the New York market bounced up $2/bbl to settle slightly above $50/bbl Feb. 5. The positive momentum continued during early Jan...

Oil-price collapse may aggravate producing nations’ other problems

02/05/2015 The recent global crude-oil price plunge could be aggravating underlying problems in Mexico, Colombia, and other Western Hemisphere producing natio...

MARKET WATCH: NYMEX oil drops, ending 4-day rally

02/05/2015 Crude oil prices dropped on the New York market Feb. 4 to settle below $50/bbl and to end a 4-day rally after a weekly government report showed oil...

Alberta’s premier seeks more North American energy integration

02/05/2015 Better policy integration and cooperation will be needed for Canada, Mexico, and the US to fully realize the North American energy renaissance’s po...

Deloitte studies oil supply growth for 2015-16

02/04/2015 A Deloitte MarketPoint analysis suggested large-field projects, each producing more than 25,000 b/d, could bring on 1.835 million b/d in oil supply...

Oil, gas infrastructure investments essential, House panel told

02/04/2015 Investments in oil and gas transportation and storage should move ahead because they are essential in continuing the US economic recovery and North...

MARKET WATCH: NYMEX crude oil prices reach 2015 high

02/04/2015 Crude oil prices surged more than $3/bbl on the New York market Feb. 3, closing at the highest level so far this year, but some analysts believe th...

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...

BP trims capital budget by $4-6 billion

02/03/2015 BP PLC plans an organic capital expenditure of $20 billion in 2015, down from the previous guidance $24-26 billion. Total organic capital expenditu...
White Papers

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by
Available Webcasts

On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected