SINGAPORE (Standard & Poor's) Dec. 5, 2012--Structural and regulatory factors are likely to keep gas prices regionalized for at least the next few years. The possibility that pricing will converge through gas-on-gas competition will only materialize over the next five to 10 years. That's according to a report, titled "Liquefied Natural Gas Producers Will Likely Benefit From Regional Pricing A While Longer," that Standard & Poor's Ratings Services published recently.
"We expect liquefied natural gas producers to maintain favorable pricing power for the next few years, given tight LNG supplies and the forecast for demand outpacing new liquefaction capacity until at least 2014," said Standard & Poor's credit analyst Andrew Wong. The report says that divergence in global gas prices has become more pronounced in the past 12 months or so due to recent changes in global supply and demand. The divergence reflects underlying regional market fundamentals, such as excess gas supply in North America, rapid growth in gas demand in Asia at a pace faster than the global average, and constrained gas supply in Asia from maturing fields. This has seen a widening gap between Asia-Pacific natural gas production and consumption. Standard & Poor's believes that natural gas consumption is likely to continue to grow, particularly in Asia. At the same time, domestic gas supplies will remain constrained and the use of imported gas, namely LNG, will increase. LNG producers should be able to bridge the gap in demand and supply, creating positive operating conditions for LNG producers in the short term.
According to the report, LNG producers face risks in the form of higher supply from additional capacity and the possible development of unconventional gas resources, such as coal bed methane, from 2015 onwards. "Falling LNG prices and potential changes in contractual conventions projects could threaten the economics of large LNG projects in the long term," said Mr. Wong.