When Moscow and Algiers agreed to improve co-operation in the gas industry at the start of the year, the world's energy consumers became nervous. Scarred by the memories of the 1970s, when Opec's stranglehold over oil supply sparked a slump in the global economy, fears rose of a similar cartel for gas.
Russian President Vladimir Putin and Algerian Energy Minister Chakib Khelil played down talk of a gas cartel. But these are sensitive times for energy consumers. Energy prices are soaring and the US and Europe are looking to gas as a way of reducing their dependence on oil. Europe was already anxious as Russia had twice interrupted its energy supplies in the previous 12 months. Producing countries are gaining more power and flexibility.In early April, the Gas Exporting Countries Forum (GECF), whose members are responsible for more than 70 per cent of the world's gas resources, agreed to examine co-operation on gas pricing. For consumers, the spectre of a gas Opec was becoming more real.But are these concerns founded in reality? They appear to take no account of the fundamental differences between oil and gas. As a liquid, oil can be easily stored, transported and, most importantly, delivered to almost anywhere in the world at any time. In contrast, gas transportation relies on the construction of expensive pipelines or equally costly liquefaction and regasification terminals.The flexibility of oil distribution means it can be traded daily on the spot market, while the high infrastructure costs for gas mean that prices and volumes are agreed well in advance, in long-term contracts. While oil-producing countries can modulate supply to influence the price, when it comes to gas, there is much less room for manipulation.In this context, fears of an Opec-like cartel clubbing together to control gas prices any time soon appear fanciful. But over the longer term, things could be different. The rapidly growing use of liquefied natural gas (LNG) and the increasing flexibility with which it can be delivered means that many of the differences between oil and gas as commodities are being eroded.The LNG market is still in its infancy. Algeria was responsible for the first international trade of the product when it began exporting to the UK in 1964, but in 2005, the most recent year for which figures are available, LNG accounted for just 7 per cent of global gas consumption.As demand for energy increases, oil companies are starting to appreciate the benefits of being able to deliver gas to the most appropriate market at the best price. With the world's liquefaction and regasification capacity increasing, the flexibility of LNG is making it more attractive for meeting seasonal demand differences between the world's major economies.As a result, the LNG market is forecast to increase fourfold by 2030, according to ExxonMobil. US firm Cheniere Energy predicts that LNG capacity will increase by more than50 per cent in the next three years, from 25,000 million cubic feet a day (cf/d) to 38,000 million cf/d, and by 2010 the product will account for 12 per cent of global gas consumption.The Middle East is well placed to take advantage of this growth, with huge gas reserves and a useful location for the world's major markets. '[Qatar's LNG liquefaction hub] Ras Lafan is almost exactly equidistant as the ship sails from London and Tokyo, and also from the east and west coasts of the US,' says James Ball, president of Gas Strategies Consulting.Like piped gas, LNG is governed almost entirely by long-term contracts. There are no dedicated markets for LNG trading, and what little is traded on the spot market is sold at a price set by the world's natural gas marketing hubs. Henry Hub is the reference point in North America, the National Balancing Point in the UK, the Japanese Crude Cocktail in Asia, and a basket of oil products in continental Europe.But this d
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