Nicholas Newman 24 November 2012
In recent years, Europe has experienced a gas glut caused by the US becoming self-sufficient in gas (mainly due to unconventional gas production), which has also caused traditional US suppliers to divert exports to the European Market. However, there have been acts of god, banana skins and black swan events that have affected in recent times the EU gas market. These have included Japan’s massive emergency imports of gas and the Libyan war that halted gas exports to Europe, although Libyan gas exports are beginning to recover.
In recent years, Europe has experienced a gas glut caused by the US becoming self-sufficient in gas (mainly due to unconventional gas production), which has also caused traditional US suppliers to divert exports to the European Market. However, there have been acts of god, banana skins and black swan events that have affected in recent times the EU gas market. These have included Japan’s massive emergency imports of gas and the Libyan war that halted gas exports to Europe, although Libyan gas exports are beginning to recover.
We are in the midst of on-going changes in the European gas
market framework, in part due to European Commission intervention, but also due
to the development of alternative gas import sources both domestic and foreign.
We have seen the rise in the use of hub pricing, as there has been a decline in
the dominance of oil indexed long-term gas contracts and a greater range of
contracts made available. The trouble is the market is asking will the new
trading environment depress prices or maintain Gazprom’s ability to influence
the market. It is also being asked is too much world gas production capacity
coming on stream too soon.
As for shale, America is not the only source for shale gas
E&P so is UK, Poland, China, India, Australia and Argentina. Nevertheless,
for the EU shale E&P is at a much earlier stage of development than in the
US. There are fears that US shale gas could flood the EU gas market, thus
delaying development of EU domestic production for years. In addition, there
are fears that Europe is still not ready to fully exploit shale gas production
on a large scale.
Factors affecting the EU gas market include developments in
Asian pipeline gas and LNG demand. The black swan in the market could be China,
Beijing could insist that the Central Asian gas resources it has been developing
should be paid for at below market prices or even in kind. Or even that it will
replace gas imports with its own massive reserves of unexploited unconventional
gas, which it could switch too, instead of importing from Central Asia, Gulf
States, South East Asia and Australia.
In addition, the timing and slippage of North American shale
gas projects. Also the future pricing and production policies of gas producers
together with market developments, including how soon will Europe’s economy recover and
the impact of rival fuel sources on gas demand. However, forecasting about the
future depends on how many acts of god, banana skins and black swans will occur
to affect the European gas market.
Loosely based on notes of a seminar given by Howard
V. Rogers Senior
Research Fellow OIES on
16
November 2011
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