LNG will not bring price parity among world markets - consultants

18 March 2010 20:36  [Source: ICIS news]

SAN ANTONIO (ICIS news)--Liquefied natural gas (LNG) will be unable to bring price parity among the major continental markets for the fuel, market players said on Thursday.

“We’re a long way off from cost convergence,” John Fahy, managing director at the UK consulting firm ERAS, said at the CWC World LNG Series – Americas Summit in San Antonio, Texas.

The fundamentals driving gas markets in Asia and the US vary widely and therefore cannot accommodate similar prices, Fahy said.

In Asian countries, the reliance on natural gas is heavy and premiums are paid as a result.

In the US, there are other options readily available for industrial, electric and residential power, providing competition and lower prices.

“Inherently the markets are very different,” Fahy said.

However, pricing for natural gas could shift if China pursues cheaper fuels to meet its growing need for energy, according to Pat Roberts, the managing director of consulting firm LNG Worldwide.

Even if Chinese buyers get natural gas priced closer to US values, it would not create a uniform international gas price, Roberts explained, but it could start bringing more price convergence with the Atlantic basin.

Ultimately, gas benchmarks will drive LNG supply growth.

Among US markets, the fortunes of LNG will depend, in part, on the development of competing shale gas.

If on-shore shale gas can be priced at $4-6/MMBtu on the Hendry Hub, then the LNG market could hit a standstill, Roberts said.

However, Henry Hub prices of $8/MMBtu could entice LNG expansion in the US.

“Eight dollar [natural gas] is high enough to launch projects,” Roberts said.

Natural gas prices are an important barometer for petrochemical commodity pricing, with the fuel used heavily as a feedstock and a power source.

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By: Ryan Hickman
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