LONDON (Bloomberg) — Global natural gas prices are increasing for the first time in two years with demand for the fuel advancing across the world.
Consumption of the cleanest fossil fuel is projected to grow under virtually all major scenarios, “including the most aggressive low-carbon transition scenarios,” according to a report published by Italian grid operator Snam SpA, the International Gas Union trade lobby and The Boston Consulting Group.
Higher prices were driven by mainly by the rising cost of crude due to its influence on oil-linked supply contracts, as well as stronger-than-expected demand for liquefied natural gas. Across the major global gas hubs, the U.S. remained the cheapest, with prices 62 percent less than those in Asia and half the levels in the European Union.
“The flexibility of gas and the ease with which it can be transported and stored make it an ideal partner for the growth of renewables,” Marco Alvera, the CEO of Snam, said in an emailed statement. “And gas is well on the way to becoming a renewable-energy source itself, thanks to the development of green-gas technologies.”
Demand rose everywhere except in the U.S. Consumption declined there mainly due to the power sector where higher prices, pipeline constraints, and greater renewables production displaced gas.
As gas prices rose, the trend toward global price convergence continued in Europe and Asia, according to the report. Spot prices, or those for immediate delivery, showed similar patterns across the major markets for LNG.
Gas price levels remain higher than those for coal because there’s usually no “appropriate” price on carbon and other pollutants that would drive fuel switching, the report’s authors said.
Looking ahead, long-term contracts that continue to be linked to oil may become more costly versus spot markets, where there’s gas-on-gas competition, according to the report. That price spread is also likely to be highly seasonal as demand varies and due to the lack of storage in Asia, the biggest LNG market.
“Storage will likely play a more significant role during periods of peak LNG demand.”
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