BP LNG chief does not see European gas prices dropping despite US LNG exports
London (Platts)--13Mar2012/422 pm EDT/2022 GMT
BP does not see natural gas prices falling in Asia or Europe as a result
of LNG imports from the United States, the head of the oil major's LNG
strategy group said Tuesday.
Some participants in the gas market have talked about the arbitrage
opportunity to export LNG from the US, which is rich in gas from production
out of shale formations, to Europe, where gas is selling at around $10/MMBtu,
or to Asia, where it sells for $15/MMBtu, compared with $2/MMBtu in the US.
But Andrew Walker, head of LNG strategy at BP Group, sees "one
direction" for LNG prices outside of the US: "inexorable tightening."
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Walker, speaking at the Edison Electric Institute's International
Utility Conference, said the next big input into the global gas market will
be a new LNG export facility being built in Australia that is due online in
2014. Even so, there is still not enough supply to meet all of Asia's demand,
Despite the apparent attraction for both sellers and buyers to send
cheap US gas to higher-priced markets in Europe and Asia, Walker said he did
not believe there is enough interest to draw the LNG to those markets.
Potential buyers are worried about the possibility that US laws that can
limit LNG exports could be triggered, disrupting supplies, Walker said. Asian
buyers in particular prefer to control their supplies of gas by locking up
the reserves that would be liquefied, he added. In the US that would not be
the case. The gas would be coming from the market, so buyers of US LNG would
be subjectto commodity risk and the price volatility that goes with it,
Walker said BP is a firm believer in oil-gas price indexation, a
view that was challenged by Peter Kreuzberg, chief commercial officer of RWE
Supply and Trading, who spoke on the same panel at the London conference as
"There is no reason to index to oil," Kreuzberg said. One source of gas
can be indexed to any other source of gas, even to another commodity, even
milk powder, he said.
Companies such as RWE that buy gas under long-term contracts indexed to
oil prices, which are rising, from supplies such as Russia's Gazprom have
been at a disadvantage recently as their customers are able to find
short-term supplies of gas at lower prices.
Even more important than what gas is indexed to, Kreuzberg said, are the
terms and conditions of the contracts. Those contracts should have market
distortion clauses that take into account lopsided markets, he argued. "The
important thing from a trader's point of view is how the gas is indexed,"
But in Asia, there are few alternatives to indexing natural gas to oil,
BP's Walker said. "There is no commodity price index and so no price
discovery, but people are familiar with oil and they are comfortable with
oil," he said.
Oil indexation also makes sense because the price of building an LNG
facility is closely tied to similar costs in the oil industry, Walker said.
"So as oil prices go up, so does LNG."
--Peter Maloney, email@example.com