Natural Gas Prices and Markets

The dramatic supply growth experienced in the United States in turn resulted in a significant decline in gas prices. Prior to the shale boom, wholesale gas prices frequently exceeded $8/MMBtu (million British thermal units) in North America, whereas in the last two years they have regularly dropped near or below $2/MMBtu. Such a dramatic improvement in cost competitiveness quickly led to gas becoming competitive with other fuels, thus natural gas has gained share across all sectors of energy use in the United States.

The price of energy in Europe depends on a range of different supply and demand conditions, including the geopolitical situation, the national energy mix, import diversification, network costs, environmental protection costs, severe weather conditions, or levels of excise and taxation. Gas prices are of particular importance for international competitiveness, as gas might represent a significant proportion of total energy costs for industrial and service-providing businesses. In contrast to the price of other fossil fuels, which are usually traded on global markets with relatively uniform prices, there is a wider range of prices within the EU Member States for natural gas.

According to the latest price statistics released by major international agencies, natural gas prices have declined and increasingly converged across regions. Throughout 2015 and 2016, gas prices declined in Europe and Asia, while they remained relatively low in North America. The decline in gas prices towards convergence globally and with coal is driven primarily by market dynamics, namely sustained growth in global supply availability and weaker growth in demand. Meanwhile, low oil prices also drove down the cost of indexed gas, further contributing to the global downward trend. Historically, natural gas was a substitute for oil in heating and industrial processes, resulting in the rise in oil index pricing which priced gas against a major benchmark price for oil. As a global market for LNG has developed, and natural gas has become more widely used, oil indexing has been replaced by the practice of pricing gas against a leading benchmark gas price.

The dramatic supply growth experienced in the United States in turn resulted in a significant decline in gas prices. Prior to the shale boom, wholesale gas prices frequently exceeded $8/MMBtu (million British thermal units) in North America, whereas in the last two years they have regularly dropped near or below $2/MMBtu. Such a dramatic improvement in cost competitiveness quickly led to gas becoming competitive with other fuels, thus natural gas has gained share across all sectors of energy use in the United States.

Although LNG only accounts for about one-tenth of global gas supply, it plays a fundamental role in determining the gas price that end users pay in markets where it is the marginal source of supply such as Asia.

The price of energy in Europe depends on a range of different supply and demand conditions, including the geopolitical situation, the national energy mix, import diversification, network costs, environmental protection costs, severe weather conditions, or levels of excise and taxation. Gas prices are of particular importance for international competitiveness, as gas might represent a significant proportion of total energy costs for industrial and service-providing businesses. In contrast to the price of other fossil fuels, which are usually traded on global markets with relatively uniform prices, there is a wider range of prices within the EU Member States for natural gas.

Sources: CEDIGAZ, Natural Gas in the World - 2017 edition; EIA (US Energy Information Administration), US Natural Gas Prices [Accessed 15 November 2017]; European Commission, Eurostat Database [Accessed 15 November 2017]; Snam, Global Gas Report 2017; The World Bank, Global Economic Monitor Commodities (data based on Thomson Reuters Datastream, The Wall Street Journal, World Bank, World Gas Intelligence) [Accessed 15 November 2017]