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Among the major players in the conflict in Syria are all of the world’s top three natural gas producers. The United States, Russia and Iran. Qatar, the world’s fourth largest producer, and Saudi Arabia, the world’s ninth largest producer have also been linked to rebel groups in the country.
Oilprice.com reports that in reaction to heightened tensions and missile strikes in Syria, LNG prices have been soaring.
Tim Daiss writes:
Also, on Wednesday, Saudi Arabia faced what the Associated Press (AP) called a flurry of attempted attacks by Yemeni rebels. Saudi Arabia’s defense forces said they intercepted missiles that targeted key infrastructure in Riyadh and another city, and drones targeting an airport and an Aramco oil facility in the country’s south.
Impact on LNG
Correspondingly, Asian LNG prices this week rose by 25 cents from last week to $7.25/MMBtu, despite falling demand due to the onset of spring in the northern hemisphere. Historically, prices drop in the warmer weather months as demand for the super cooled fuel recedes.
For example, this past winter as China ramped up gas demand as part Beijing’s mandate to replace dirtier burning coal needed for power generation with gas, LNG prices breached the $11/MMBtu mark, the highest in three years. However, almost on cue, gas prices have dropped nearly 40 percent since those January highs due to warmer temperatures.
Oil price linkage
In Asia, most natural gas is imported as LNG, while the price is indexed to crude oil on a long-term contractual basis, though there has been an increase in spot and short-term trading in recent years. Consequently, geopolitical pressure on oil prices also impacts LNG prices.
The Asia Pacific market accounts for around three-quarters of global LNG trade and one-third of global natural gas trade. Moreover, increased gas and LNG demand growth in Asia will largely be driven by China.
Since there is currently no globally integrated market for natural gas, pricing mechanisms vary by regional market. Internationally traded natural gas has also been largely indexed to crude oil prices such as North Sea Brent or Japan customs-cleared crude (JCC) because of the liquidity and transparency of crude oil prices and the substitutability of natural gas and petroleum products in certain markets.
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