Trade Resources Economy LNG Volumes From US and Australia Could Lead to a Progressive Convergence of Gas Prices

LNG Volumes From US and Australia Could Lead to a Progressive Convergence of Gas Prices

LNG volumes coming on stream from countries including the US and Australia in the next few years could lead to a progressive convergence of global gas prices and more LNG imports into Europe as well as the Far East, US Energy Secretary Ernest Moniz said.

"If we put 100 billion cubic meters into the LNG market, that inherently could lead to a more liquid global market," Moniz said in an interview on the sidelines of a G7 energy ministers' meeting in Rome Tuesday.

He added that "prices would never equilibrate because of the large transportation costs, but nevertheless it could go in that direction."

On Monday and Tuesday, energy ministers of the G7 countries -- US, UK, Italy, France, Germany, Japan and Canada -- met in Rome to discuss strategies to increase security of supply and reduce energy dependence.

"Certainly among G7 ministers, there was a general feeling that moving in that direction" with "more spot markets developing, more active hubs, would be a good development for energy security."

Asked about new LNG exports that were going to come on stream in the next few years in the US, he said the first LNG export project would go online in 2015 and a second one would start exporting in 2018, while most of the other projects would not take off before 2020.

"Markets can evolve quite a bit over a five-six year period ... almost certainly we will be putting large amounts of natural gas into the global market and then we'll see how the market addresses that," Moniz said.

Asked whether G7 energy ministers had discussed the development of a gas hub in Japan, he said "the key is the contract structure" on the basis of which Japanese buyers were importing gas, and the fact they were looking at diversifying sources, with US volumes coming on stream providing "a stronger leverage" for changing the structure of such contracts.

He added that other new sources of supply would also contribute to shaping global LNG dynamics.

"Australia is certainly building up dramatically, Canada will be exporting more," he said. "It will be a complex market and I think if Europe has a strong need, the market will probably provide that signal."

Asked whether there were concerns regarding negative effects on US domestic gas prices as a result of LNG exports, and whether policymakers in the US were considering setting a cap to the number of approved projects, he said that although a cap itself was not being discussed, "in our process we are required by law to make a public interest determination," which is based on "many factors" such as the "impact on domestic markets and environmental impact."

He said geopolitics "has always been one of the criteria as well, so we need to balance that as well."


Reversing gas flows from Poland as well as other areas in Eastern Europe, with the exception of Slovakia, is one of the options that is being looked at by G7 countries as part of efforts to provide relief to Ukraine should its gas supplies from Russia be halted, Moniz said.

He said such volumes "won't solve the whole problem, but they could contribute" to providing "some sort of relief."

He added that "obviously longer-term relief is going to be required," including building new gas infrastructure.

The G7 energy ministers' meeting happened during the escalating conflict between Ukraine and Russia, with the risk of gas supplies being cut to Ukraine in June if the country does not prepay for June deliveries from Russia in full by the end of May, Gazprom said Wednesday.

Asked whether G7 energy ministers had addressed the issue of Ukraine's gas bill, he said the meeting was focused on putting together a "comprehensive approach" to the issue of supply security for G7 countries ahead of a G7 leaders' meeting in Brussels next month.

Moniz said that aside from the crisis in Ukraine, diversifying import sources and routes was one of the G7 energy ministers' main priorities in terms of increasing security of supply. He added that Algeria was among the countries that had potential to increase production.

"Our understanding is that Algeria has large shale resources [that] can be developed," he said, adding that the country also has "potential for electricity supply to Europe through big solar projects."

For gas, he said G7 countries were looking at options that include Caspian gas, increased imports from Northern Africa and more LNG.

Asked whether the unstable situations in Algeria and Libya were raising concerns on how reliable those countries are as suppliers, he said Libya in particular provides "a very uneven supply," but looking at the global oil market, "there's historically [a] very high amount of unplanned outages, Libya is one part of that ... and yet the oil markets have not reacted in a particularly volatile way."

"When you have a highly diverse market, the market can adjust" to such changes in supplies, he said.

"That's perhaps what we would see in gas if we get more suppliers and more LNG capacity," he added.

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US, Australia LNG Exports to Promote Price Convergence
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