"Things used to be simple for natural gas producers. Customers were eager to secure long-term contracts. Pipelines — in which the buyers invested alongside the producing countries — were the only way to transport gas. Quantities were known long in advance, with prices indexed to oil. And except for occasional turmoil in the Middle East and Central Asia, or the annual winter dispute between Ukraine and Russia, stability was the norm.
No longer. A spot market for natural gas has emerged, reflecting the diversification of producers and the rising trade in liquefied natural gas, which can be transported in tankers instead of pipelines. Unlike the contract price, the spot price for gas hasn’t followed that of oil. In 2009, gas prices are down 40 percent, while oil is up almost 50 percent.
The bear market in gas might not last. Winter is coming, increasing demand. And record low prices could lead relatively high-cost fields to cut production.
But the large and unexpected disconnect does raise a serious question, even for European buyers, which rely almost exclusively on traditional long-term gas contracts with producers in Russia, Algeria and the Middle East. Will the price of a British thermal unit of gas continue to fluctuate alongside that of a barrel of oil?
Oil and gas analysts diverge on whether this disconnect is here to stay. Those who think so argue that the two sources of energy cannot always be substituted for each other. As technology advances, and as liquefied natural gas grabs a larger share of the market, the gap could become permanent.
At the very least, Russia and other big producers are likely to face customers who will want to move away from strict indexation of gas prices to oil. It may take a few years in Europe, where the ingrained culture of state monopolies is comfortable with the current arrangement. But at some point, a more volatile market will herald the end of predictable harmony, adding yet more uncertainty to resource-dependent economies."
china is choking on there own coal smoke,and europe is long overdue for a change in who they buy gas from.in fact lng imports have increased to europe,and they have stated a less depedent on coal plan.dont be suprised to see more lng on the eastern canadian coastline.coal is dead forward looking,articals prove a decline in u.s. reserves and costs are slowly rising to obtain these coal fields.obama will do NOTHING with ngas here to protect the coal unions,while canada and australia pump it to asia and europe.in due time lng will become king.kitimat lng is the first of more to come on the british columbia coastline.every one is skeptical of the future.remember a king told mozart he had to many notes,,,remember these words,,,,