Oil, natgas price gap to narrow – Italy's Eni CEO

06 March 2012 22:04  [Source: ICIS news]

HOUSTON (ICIS)--The price gap between crude oil and natural gas ­ especially that in the US ­ will likely narrow, the chief executive of Italy-based Eni said on Tuesday.

When measured by energy content, the price of natural gas in the US is about one-sixth of the price of oil, said Paolo Scaroni, Eni chief executive.

He spoke at the IHS CERAWeek energy conference.

"I think that gas prices will need to narrow the gap with oil prices," Scaroni said. "Either gas prices will go up or oil prices will go down.

"There is no economic reason to keep the differential as such as we see in the US," he said.

There are several ways for the price to narrow between the two energy sources, Scaroni said.

Demand in developing countries could increase, he said.

In the US, trucks and vehicle fleets could switch to natural gas to take advantage of the cost savings, Scaroni said. The cost of conversion is relatively small when compared with the potential fuel savings.

"With gas so cheap when compared with oil, it is not hard to see the incentive for a massive fuel switch," he said.

The US and the rest of the world could move away from nuclear energy as a reaction to the March 2011 tsunami disaster in Japan, he said.

The gap in natural gas prices among regions of the world could narrow as trade increases for liquefied natural gas (LNG), Scaroni said. This would increase prices in cheap regions and lower them in expensive ones.

"The growth in LNG trade means that there will be a partial rebalancing in global prices," he said.

Regarding US LNG exports, Scaroni said the country may be ambivalent about selling the fuel overseas, since that could raise domestic prices.

Also, other countries could start developing their unconventional natural gas reserves, he said, which would increase supply.

IHS CERAWeek ends on Friday.

By: Al Greenwood
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