Sedigas - Annual Report 2.010

Gas in the world > Introduction

Introduction

The 2010 is characterized by a global oversupply due to the expansion of unconventional gas and clear recovery in consumption, which is emerging from the effects of the economic crisis that began in late 2008

Another defining feature of 2010 is the growing price difference between the spot market and long-term contracts, mainly linked to the price of crude oil. This difference may have reached 40%.

As is well known, this excess supply of natural gas in the global market arose for two reasons: a drop in and slowdown of demand and the non-conventional gas supply, primarily in the US market.

A recent study by Booz&Company concludes that stabilising the excess supply, along with the development of the spot markets, would strengthen natural gas’s position over coal as the alternative fuel for new power stations in the short and medium-term future.

In the US, the increasing relevance of non-conventional gas has intensified talks concerning the role natural gas could play in this country, within the general goal of mitigating climate change. Last summer, the Massachusetts Institute of Technology (MIT) published The Future of Natural Gas, a report which supports the establishment of a carbonpricing system, the cost of low-carbon technologies and the benefits of a global gas market. According to this report, cuttingCO2 emissions in half by 2020 is possible using a carbon pricing mechanism. Results could prove two-fold: firstly, reduce demand, and secondly, replace coal with natural gas within the electricity generation industry.

Since mid 2008, coal and natural gas have been clearly competing over electricity generation prices, particularly in the US, as emphasised in the publication BP Statistical Review of World Energy 2010.

As mentioned, the evolution of prices in the main short and medium-term exchange markets kept values low for much of 2010, in line with the previous year’s trends, with US market values even lower. For example, at the end of April, the futures prices reflected in the American-based NYMEX varied between 4.2 and 5.3 $/MMBtu for the next 12 months. At the end of September, the range for the next 12 months fluctuated between 3.8 and 4.5 $/MMBtu. In December, the cold wave which swept across the northern hemisphere was accompanied by a hike in prices. The NYMEX 12-month strip rose to nearly 5 $/MMBtu.

The US Government Agency EIA, in the forecast published in April 2010, estimated the average value of the Henry Hub spot market price to be 4.44 $/MMBtu in 2010. In 2011, the forecast showed 5.33 $/MMBtu. In December, Oil and Gas Journal published predictions that US prices would remain low throughout 2011, due to the shale gas supply.

It is also worth mentioning that, in 2010, construction on the Nord Stream gas pipeline began. Work commenced in early April. Gazprom predicts that the first natural gas pipeline will be finished in 2011, with another running parallel to the first in 2012. Joint capacity will come to 55 bcm.

Se espera que en los próximos años, el gas natural tenga un gran avance en los países en desarrollo (incluidos China e India).

ENAGAS

Annual Report 2.010: Sedigas - The Spanish Gas Association