According to the International Gas Union’s (IGU) Wholesale Gas Price Survey, dramatic changes have taken place in the natural gas wholesale price formation during a period of major developments in the global gas market.
As the report says, the share of gas on gas competition increase by 0.5% between the 2017 and 2018 surveys to 47%. That largely indicated the increasing share of spot LNG cargoes in LNG imports and rapidly growing US consumption, which have offset the declining share in pipeline imports, due to reduced European pipeline imports and increased China pipeline imports.
In addition, the oil price escalation share reduced to 19%, with the loss in LNG imports being partly offset by gains in pipeline imports and domestic production in China.
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Moreover, 2018 saw the most significant change in LNG imports since the IGU began the surveys, driven by the continued rise in Henry Hub priced US LNG exports as well as a general grow in spot LNG cargoes. Namely, the share of spot LNG imports reached just over 30% of total LNG imports in 2018, amounting to about 126 BCM, which is an increase of 65 BCM since 2016, or 10.5%.
Gas on gas competition for LNG imports in the traded markets, especially in Northwest Europe, added another 4.5% of total LNG imports. Gas on gas competition accounted for over 50% of LNG imports into Europe in 2018, in comparison to 33% in 2017, while the gas on gas competition in China and the Indian sub-continent went up from 24% to 30.5% and for the Asia Pacific importers from 18% to 24%. However, in spite of the growth in LNG imports between 2017 and 2018 of some 22 BCM or 5.5%, the actual volume of oil price escalation imports declined for the first time.
Continuing, wholesale prices outside North America increased between 2005 and 2014, declined in most regions in 2015 and 2016, before rebounding again in 2017 and 2018 in almost all regions. This was mainly in Europe, the Asia Pacific LNG importers, China and India, where oil prices increased and spot markets tightened.
Prices also went up in the more regulated regions like Africa and the Middle East, because authorities continued policies to increase prices to more market or economic levels. The average world wholesale price in 2018 was $4.38 per MMBTU, which is the highest average price since 2014.
Finally, global gas prices have been converging since 2005, reflecting wider globalisation of the gas markets, at least up until 2018, when some divergence took place. It is also concluded that there is more gas price convergence amongst countries with market related pricing, which are connected with the global gas market through gas imports, with oil-indexed gas prices, and within Europe. The trend of global gas price convergence is more distinct when the report excludes North America.
