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Crude oil prices may be showing signs of a recovery, but natural gas prices will stay depressed for years to come, the head of Italian energy company ENI SpA said in an interview on Tuesday—and the grim price outlook could force energy companies to rethink some investments in new gas projects.
"Gas prices are going to stay low for a considerable time—the next three to four years," said ENI chief executive Paolo Scaroni. As a result, "we are looking much more carefully now at projects that were in the pipeline."
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Agence France-Presse/Getty Images
CEO Scaroni says he doesn't see the gap between natural-gas and crude-oil prices closing any time soon.
For example, poor economics may prompt ENI to shelve a plan to double capacity at a big liquefied natural gas plant in Egypt, called Damietta LNG, Mr. Scaroni said.
The price of gas has traditionally tended to take its cue from crude prices. But while oil has more than doubled since its lows of late 2008, the price of gas has lagged far behind.
That reflects not only the recession-driven drop in demand for the fuel from utilities and industrial consumers, but also a big glut of gas in North America. Advances in drilling technology have allowed producers to tap huge volumes of gas locked in dense rock called shale. That has led to a big uptick in production and an upgrading of domestic reserves.
The U.S. price of gas has fallen to around $5 per million British thermal units, from more than $13 per million BTUs in July last year. Meanwhile, crude oil has risen from around $35 a barrel at the end of last year to briefly nudge over $80 Monday, on a weakening dollar. It fell back slightly to $78.81 a barrel Tuesday afternoon on the New York Mercantile Exchange.
Experts agree that the outlook for natural gas looks grim, but some say it will improve after about 2013.
"Once you go out a few years—and demand recovers and the market absorbs the excess gas—things look more positive," said Frank Harris, a gas analyst at consultancy Wood Mackenzie. "But there's an awful lot of uncertainty that could change the picture."
Whatever the long-term outlook for gas is, some experts note a fundamental change in the market—a "decoupling" of oil and gas prices, particularly in the U.S.
Oil now costs more than $75 a barrel, while the equivalent amount of natural gas costs just $25. "I don't see that gap closing any time soon," Mr. Scaroni said.
To be sure, most long-term contracts for natural gas—such as those between Russia's OAO Gazprom, the world's largest gas producer, and its European customers—are indexed to the price of oil.
But there is now a big disparity between the long-term contract price of gas and the spot price.
Mr. Scaroni said that 18 months ago, he would have said the European market for natural gas would grow by 2% a year, as domestic production fell and demand for the clean-burning fuel rose. At that time, LNG cargoes were selling in the Far East for $20 per million BTUs, he said.
Since then, the demand outlook has changed dramatically. Germany is poised to backtrack on its decision to phase out nuclear power, meaning less demand for gas in Europe's largest economy, he said. Meanwhile, it is likely that the same technology that has been used to open up shale gas in the U.S. could now be used to develop unconventional gas resources in Europe, meaning more supply.
Finally, because the U.S. is importing much less LNG, cargoes of the fuel are now being diverted to Europe, potentially leading to a glut that would put further downward pressure on prices.
Write to Guy Chazan at guy.chazan@wsj.com
Crude oil prices may be showing signs of a recovery, but natural gas prices will stay depressed for years to come, the head of Italian energy company ENI SpA said in an interview on Tuesday—and the grim price outlook could force energy companies to rethink some investments in new gas projects.
"Gas prices are going to stay low for a considerable time—the next three to four years," said ENI chief executive Paolo Scaroni. As a result, "we are looking much more carefully now at projects that were in the pipeline."
View Full Image
Agence France-Presse/Getty Images
CEO Scaroni says he doesn't see the gap between natural-gas and crude-oil prices closing any time soon.
For example, poor economics may prompt ENI to shelve a plan to double capacity at a big liquefied natural gas plant in Egypt, called Damietta LNG, Mr. Scaroni said.
The price of gas has traditionally tended to take its cue from crude prices. But while oil has more than doubled since its lows of late 2008, the price of gas has lagged far behind.
That reflects not only the recession-driven drop in demand for the fuel from utilities and industrial consumers, but also a big glut of gas in North America. Advances in drilling technology have allowed producers to tap huge volumes of gas locked in dense rock called shale. That has led to a big uptick in production and an upgrading of domestic reserves.
The U.S. price of gas has fallen to around $5 per million British thermal units, from more than $13 per million BTUs in July last year. Meanwhile, crude oil has risen from around $35 a barrel at the end of last year to briefly nudge over $80 Monday, on a weakening dollar. It fell back slightly to $78.81 a barrel Tuesday afternoon on the New York Mercantile Exchange.
Experts agree that the outlook for natural gas looks grim, but some say it will improve after about 2013.
"Once you go out a few years—and demand recovers and the market absorbs the excess gas—things look more positive," said Frank Harris, a gas analyst at consultancy Wood Mackenzie. "But there's an awful lot of uncertainty that could change the picture."
Whatever the long-term outlook for gas is, some experts note a fundamental change in the market—a "decoupling" of oil and gas prices, particularly in the U.S.
Oil now costs more than $75 a barrel, while the equivalent amount of natural gas costs just $25. "I don't see that gap closing any time soon," Mr. Scaroni said.
To be sure, most long-term contracts for natural gas—such as those between Russia's OAO Gazprom, the world's largest gas producer, and its European customers—are indexed to the price of oil.
But there is now a big disparity between the long-term contract price of gas and the spot price.
Mr. Scaroni said that 18 months ago, he would have said the European market for natural gas would grow by 2% a year, as domestic production fell and demand for the clean-burning fuel rose. At that time, LNG cargoes were selling in the Far East for $20 per million BTUs, he said.
Since then, the demand outlook has changed dramatically. Germany is poised to backtrack on its decision to phase out nuclear power, meaning less demand for gas in Europe's largest economy, he said. Meanwhile, it is likely that the same technology that has been used to open up shale gas in the U.S. could now be used to develop unconventional gas resources in Europe, meaning more supply.
Finally, because the U.S. is importing much less LNG, cargoes of the fuel are now being diverted to Europe, potentially leading to a glut that would put further downward pressure on prices.
Write to Guy Chazan at guy.chazan@wsj.com
bella domanda ora ci guardo.......???