Natural gas markets worldwide are showing increasing convergence, particularly among the Organization of Economic Cooperation & Development (OECD) countries, and that trend, spurred by increased liquefied natural gas (LNG) traffic, is expected to continue, according to Raymond James’ Energy Stat of the Week.

Over the past decade, natural gas prices for four key members of the OECD, that is the European Union, Japan, the U.K. and Canada, “have followed virtually the same trend as in the U.S.” Raymond James notes the R-squared between U.S. and Canadian prices has been 0.97 over the 1996-2005 time period — an almost perfect correlation. That is predictable, given the two nations are adjacent, but what is surprising is that the R-squared with the U.S. from 1996-2004 was 0.84 with the U.K., 0.85 with Japan and 0.86 with the EU.

The financial analysis and investment firm sees the growing trend as boosting profitability of gas producers with international operations, and that of service firms which will benefit from increased drilling activities.

“The creation of a single global gas market means that global competition for LNG will intensify over time, helping keep gas prices high — and linked to crude oil at a BTU parity ratio of 6:1 – in countries that will increasingly rely on LNG, such as the U.S.,” the Raymond James report said.

The investment firm sees other large developing countries such as China and India following the trend of the industrialized OECD nations in future years as dependence on LNG increases.

“Global supply/demand fundamentals for gas, most substantively exemplified by LNG flows, now help shape prices in every market that depends on LNG.”

There is still plenty of short-term variability in global natural gas prices due to factors such as weather, the report said, noting that in March, U.S. natural gas prices were about $7/Mcf, reflecting the warm winter, while prices in the U.K spiked briefly above $30/Mcf because of cold weather. But, increased LNG trade and long line pipelines “is creating slowly, but surely a single global gas market.”

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