DUBAI: Members of Gas Exporting Countries Forum (GECF) ended their 13th ministerial meeting and first summit last week in Doha amid concern on natural gas prices that have been falling since global financial crisis of 2008.
World gas demand fell by 2.1 per cent from its 2008 level but recovered and rose by 7.3 per cent in 2010 mainly due increase in Japan's LNG imports in the wake of Fukushima nuclear crisis.
Although oil prices recovered from lows of December 2008 when they reached $35 (Dh128) a barrel to the present level of over $100, gas prices fell from $12 per million British thermal units (mbtu) to as low as $3 and now are about $4 per mbtu, Gulf News reported on Monday.
Summit declaration reiterated "need to reach a fair price for natural gas based on gas to oil prices indexation, recognize importance of long-term gas contracts to achieve balanced risk-sharing mechanism between producers and consumers". Complaint on level of prices is loud it is not clear how Forum will be able to reach "fair prices" which many statements equate to parity with oil prices.
While member states are intent on cooperation, exchanging information, possibly investing together in some projects, they do have differences as to where their organization is headed on its role in pricing of gas.
This is not easy given state of the market and sudden increase of supplies especially from the US with its "shale gas revolution". US LNG terminals are now working at low capacity due to reduced imports. GECF is under pressure from consuming governments not to attempt to become a "gas Opec" thereby influencing gas prices.
Producers and consumers do agree on need for investment to meet future demand. International Energy Agency recently estimated that around $10 trillion of investments will be needed in gas industry until 2035. Today's prices do not encourage such a level of investment and therefore there may be a shortage in the future driving gas prices up, report said.
GECF members control more than 70 per cent of world's gas reserves and probably more than 60 per cent of exports, which are likely to rise to 70 per cent by 2020. Wood Mackenzie's Global Gas Model forecast exports from GECF members in 2020 to be 1,038 billion cubic metres (bcm), a huge rise from 488 bcm in 2007. Total non-GECF exports are likely to rise to 430 bcm from 325 bcm in same period.
Problem of unified pricing mechanism is it hardly exists. In US there is truly spot market depending on prices at Henry's Hub. But spot market in Europe and Asia is recent one and small in size. Prices depend on long-term contracts between buyers and sellers.
In Europe prices are linked to a basket of oil products and those in Asia linked to crude oil.
It will take some time before GECF countries find the ground that will allow them more control over gas prices.
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