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Multiyear Contracts
U.K. natural gas for delivery tomorrow dropped 11 percent this year in London to 31.5 pence a therm ($4.85 a million British thermal units), or about $26.25 a barrel of oil equivalent. North Sea Brent crude is worth about $86 a barrel.
Most of the gas consumed in Europe is bought under multi- year contracts that are linked to the price of oil, a formula that exporters such as Algeria, Qatar and Russia say guarantees long-term investment.
Supply originally intended for delivery to the U.S. is coming to Europe, where it’s being sold on spot markets, grabbing market share from long term contracts, said Morten Frisch, a senior partner at U.K.-based Morten Frisch Consulting Ltd. Spot trading activity across Europe is rising.
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Qatar, the world’s biggest LNG producer, doesn’t plan to reduce gas output, Minister of State for Energy Mohammed al-Sada said last month.
The Qataris want to produce the most gas possible to maximize output of natural-gas liquids, said Caruso, formerly administrator at the U.S. Energy Information Administration. It’ll be difficult for exporters to agree on supply quotas because much of the investment has already been made, he said.
In the U.S., gas has fallen 28 percent this year, the second-worst performer after sugar in the S&P GSCI Index of 24 commodities, as gas produced from shale rock bolstered supply.
Shale Gas
If shale production can be replicated in Europe and Asia, it will threaten the two main markets for gas exports, Caruso said. GECF is “certainly concerned about the success of shale gas technology in North America,” he said.
Unlike OPEC, founded in 1960, the GECF hasn’t set any price targets or production quotas since its foundation in Tehran in 2001.
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