A "very mild winter" in 2006-2007 took a lot of pressure off gas demand in what is becoming a strong suppliers' market, according to a new report by the International Energy Agency (IEA), "Natural Gas Market Review 2007." However, the study also found that the supply-demand balance is still tight.
"This should not lure decision makers into a false sense of security," the report warned. "Supplies remain tight, and new projects under development are subject to rising costs and increasing delays. A return to more normal winter conditions in consuming countries will put strong pressure on gas supplies. Colder-than-normal weather in the winter (or indeed hotter weather in the summer) could quickly see supply difficulties re-emerge in some areas."
The continuing reliance on gas to meet new demand for power generation will only serve to tighten a gas market that has seen development of infrastructure, particularly pipelines, occur at too slow a pace globally, the IEA said. Gas-fired power generation remains the default option for new generation. In Europe almost two-thirds of generation under construction is gas-fired, and in North America the proportion is half, the IEA said. "Uncertainty over climate change policy is slowing investment in new coal-fired plants in Europe and to a lesser extent, North America."
As the gas market continues its march toward globalization on the back of developing liquefied natural gas (LNG) infrastructure around the world, the United States and its Henry Hub are offering the "price to beat" to world markets.
"Nevertheless, LNG importers in the Pacific and European regions remain able to outbid the United States in order to secure incremental supplies due primarily to differences in domestic market structure," the IEA report said. "During periods in 2006, a correlation between Henry Hub and prices in the United Kingdom became apparent, whilst some long-term LNG supply contracts are now indexed to the Henry Hub."
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