Or perhaps more accurately, American shale gas is helping to create a global gas market. For years, natural gas needed pipelines to make its way from seller to buyer, and owing to that, most natural gas contracts were long-term and often linked to the price of oil.
But thanks to liquified natural gas, suppliers can now superchill gas and put it on cargo ships to send halfway around the world, making the gas market more like that of its kindred hydrocarbon, oil. As a result, the differences between regional LNG prices has begun to narrow—the so-called “Asian premium,” more than 50 years old, is starting to evaporate. American shale gas is ready to expedite this transition to a more fungible, global gas market, as Bloomberg reports:
[The] global LNG titans gathering in Tokyo this week for Gastech are in the midst of the biggest shakeup since the industry was founded in the 1960s. Just as American crude is increasingly making its way to Asia, the world’s biggest oil market, the burgeoning armada of gas cargoes from the U.S. and elsewhere are poking holes in the financial system on which the industry’s multi-billion plants are funded.
“As U.S. exports ramp up, we’re going to see even more flexibility with more people trying to buy and trade volumes. The old models of stable long-term contracts will really have to change,” said Zhi Xin Chong, a gas analyst for Wood Mackenzie Ltd. in Singapore. “We’ve already seen the impact of U.S. LNG on contract trends, with more destination flexibility coming into play.”
U.S. shale is also helping to get rid of destination requirements for LNG cargoes, which will allow intermediaries to buy and then re-sell LNG to the highest bidder. That will help make the market more liquid, and will reduce regional price variation as well.
America is easing into its new role as an LNG exporter, but as we continue to build out our export infrastructure and ship more of our shale gas abroad, the market is going to change at a fundamental level. Whichever hydrocarbon you’re looking at—oil or natural gas—it’s a good time to be a buyer.