STANDARD & Poor’s Ratings Services expects natural gas prices to remain “regionalized” over the next few years, which would allow existing gas producers to continue enjoying a “favorable pricing power.”
In a report titled “Liquefied Natural Gas Producers will Likely Benefit from Regional Pricing a While Longer,” S&P said structural and regulatory factors were causing the divergence in global gas prices, which had become more pronounced in the past year given recent changes in global supply and demand.
The report noted that the divergence reflected the underlying regional market fundamentals, such as excess gas supply in North America, rapid growth in gas demand in Asia and constrained gas supply from maturing fields in Asia. This is seen widening the gap between Asia-Pacific natural gas production and consumption, it added.
“We expect liquefied natural gas [LNG] 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 S&P credit analyst Andrew Wong.
The global credit watchdog pointed out that natural gas consumption was likely to continue to grow, particularly in Asia, while domestic gas supplies would remain constrained and the use of imported gas, namely LNG, would increase. Existing LNG producers should be able to bridge that gap in demand and supply, creating positive operating conditions for LNG producers over the short term.
The possibility that pricing will converge through gas-on-gas competition will only materialize over the next five to 10 years, S&P added.—Amy R. Remo