Natural gas exporters want oil-linked pricing to maintain supply

By Mohammed Aly Sergie on 3/13/2018

DOHA (Bloomberg) -- The debate over how to price natural gas is settled, at least for exporters, and oil-indexing should prevail.

Prices have to be linked to crude oil to keep expected revenue predictable, with some $8 trillion of investments in the fuel needed by 2040, according to Yury Sentyurin, the new head of the Gas Exporting Countries Forum, an industry group representing gas sellers. Many consumers are opting for different formulas used by the U.S. and Australia, which are emerging as top exporters.

"Consumers should understand the peculiarities which producers face," Secretary General Sentyurin said in an interview. "Security of investment and supply can only be on the basis of long-term contracts closely connected to oil prices so we could plan further investments into crucial infrastructure."

Continued expansion of supply is needed to meet demand that’s forecast to grow at an average of 1.6% per year until 2040, Sentyurin said at GECF headquarters in Doha. GECF members include Russia, Iran, Algeria and Qatar, the world’s largest producer and exporter of liquefied natural gas. Instead of oil, some consumers use tolling to pay for liquefaction and price the gas based on Henry Hub on the Nymex and other benchmarks.

Interview Highlights

Gas demand will continue to be driven by power generation, chemicals, fertilizers and ship bunkering. Natural gas also has potential in transportation, especially if countries build the infrastructure to make it available; Russia’s plan to build 500 fueling stations for natural gas vehicles is an example. There is no gas glut and "no oversupply of LNG now and in the foreseeable period of time." The GECF has identified 18 gas producing countries that could potentially join the group as long as they reject the imposition of non-UN sanctions on members. That means that countries that penalize the gas sectors of Russia, Iran or other members aren’t welcome while Egypt and UAE remain members despite their economic embargo of Qatar because the boycott doesn’t directly target gas. Gas Research Institute is being established in Algeria, and is one of Sentyurin’s main goals over the next two years.

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