Natural gas producers, consumers and regulators in North America and Europe will wrestle with new supply uncertainty, fuel alternatives, and volatile markets and prices for at least the next three years, according to Cambridge Energy Research Associates (CERA) researchers.
In a report unveiled at CERAWeek 2005 in Houston, Michael Zenker, senior director of North American natural gas at CERA, said the country has "exited the era of gas-on-gas competition and are entering a sustained period of higher prices and price volatility. The soonest we could see price relief is late 2008, when large new [liquefied natural gas] LNG projects deliver new supply. Delays could easily push that to 2009. The industry is becoming resigned to this environment, but it risks forcing consumers to look for alternatives to natural gas."
Simon Blakey, a CERA senior director, noted that the spot gas market in the UK and emerging spot markets in northwestern Europe and Italy "are taking their signals from the supply decline in the North Sea and from global markets -- notably from North America -- via the LNG arbitrage opportunities in the Atlantic Basin. This dual price dynamic will remain the dominant commercial environment for European gas markets and for their major suppliers in Russia and North Africa for the next few years."
According to CERA, there are indications that, following the expected arrival of significantly more LNG imports at the end of the decade, the supply outlook in North America may remain constrained, while Europeans may have to deal with overcapacity conditions.
Beyond 2010, North American gas demand growth may challenge even the ability of the LNG industry, especially when the unique risks of serving the market must be borne by developers, according to Zenker. "Significant investment in coal-fired electric generation and in the Alaska pipeline are important components of CERA's long-term outlook for North American energy markets and [are] indicative of the level of effort and expenditure necessary to keep the gas market in balance."
Markets in both North America and Europe may be pushed to accommodate supply and demand pressures for the balance of the decade, according to the CERA researchers.
"There is risk that a severe cold winter will force gas curtailments during any winter before 2009," said Zenker. "After 2009, a new price floor will keep prices higher than historical levels."
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