Despite wider distribution there is still no global pricing for natural gas

Bloomberg/Fuel Fix:
Natural gas is rapidly becoming one of the most traded global commodities, but that doesn’t mean it will have a global price, according to Royal Dutch Shell.

While the fuel can be transported anywhere on liquefied natural gas carriers, it will probably remain regionally priced for the time being, with some contracts continuing to track oil, said Roger Bounds, senior vice president for global gas at Shell. Prices will depend on location, regulation and infrastructure, as some countries replace coal in electricity generation to cut carbon emissions.

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“I shouldn’t say it’s not possible, but what would it take for such a price to be possible?” Bounds said in an interview in Stavanger, Norway. “We have some way to go.”

For a global gas price to emerge, pipelines would need to shed some interstate regulations like in the U.S., trade data would need to be more transparent and widely available and buyers and sellers would need more confidence their contracts will be respected, he said. Europe is partly on that path with some hub pricing, he said.

“We’re somewhere back from that in a number of other markets,” Bounds said. “We’re not that close to that in India, we’re not close to that in China.”

Until then, there will be many two-party gas trades. Additionally, conventional contracts that link the price of gas to the price of oil will remain, partly because the two will become increasingly interchangeable as energy sources.
An imperfect market like this presents opportunities for traders to profit if they can access data on local pricing.  I suspect that will be more likely as financial publications like Bloomberg gather and publish this information.


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