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Actual cheap natural gas prices and economic recovery could bring a price recovery soon

The world is currently awash in cheap natural gas but low prices and an economic recovery could spur a price recovery in the not too distant future.

 

 

The world is currently awash in cheap natural gas but low prices and an economic recovery could spur a price recovery in the not too distant future, said Paolo Scaroni, chief executive of Italy-based Eni.  The shale gas boom in the U.S. has reduced import needs, freeing up supply elsewhere, he said. But demand cratered amid the economic crisis and recession.


Natural gas prices that once rose every year now hover at about a third of their peaks, he said. Investment in liquefied natural gas infrastructure created "almost idle" terminals in the U.S. and partly empty import pipelines in Europe. "It looks like concerns about supply security are a thing of the past," Scaroni said at the annual CERAWeek conference in Houston. But he advised against getting too comfortable.


Demand will rebound amid low prices and the economic recovery, Scaroni said. Gas-fired electricity is cheaper than coal-fired, providing an incentive to switch fuel sources. Natural gas is a bridge between more carbon-intensive fossil fuels and alternatives. And low prices have chilled investment in production and infrastructure, which will lead to a supply crunch once demand returns, he said. "Gas will come full circle and we will need to prepare for a tight market," he said.


Eni is addressing that future need in part by diversifying gas transit routes, particularly after a dispute between Ukraine and Russia caused interruptions serious enough to bring Eastern Europe "to its knees," he said. Eni is the biggest western buyer of Russian gas. Eni is a partner of Russian gas giant Gazprom in the South Stream gas pipeline project, which will transport up to 6 billion cubic feet per day of Russian and central Asian gas under the Black Sea to the European Union. Also, the Nabucco pipeline, which is backed by the European Union and the United States, aims to reduce Europe's energy dependence on Russia by securing gas from the Caspian region. "The pipelines are not alternatives -- they are complementary," Scaroni said.

Source : Reuters