North America’s natural gas market is further away from converging with the rest of the world than it was five years ago, an energy analyst with Raymond James & Associates Inc. said Monday.

The structural gas glut in North America is showing no signs of abating anytime soon, while both European and Asia-Pacific markets are “increasingly feeling upward gas price pressures” because of rising liquefied natural gas dependence, especially since Japan’s Fukushima nuclear disaster, noted Pavel Molchanov.

“An amalgamation of the various markets could come about in one of two ways,” he said. “Either North American gas prices will rise to the levels of Europe and Asia (parity with oil), or European and Asian prices will plummet to the level of North America. Neither of these scenarios seems remotely realistic until at least the second half of this decade, though the bullish scenario is more plausible in the long run.”

Gas, he noted, continues to be bought and sold in multiple regional and sub-regional markets. North America “is the only gas market that has a truly continental scope.” Meanwhile, the European Union “consists of three distinct gas markets” in the Mediterranean Sea, the North Sea and Central/Eastern Europe. Asia-Pacific, with its size and large number of island economies, has several separate gas markets.

“True convergence” between North America’s gas market and Europe/Asia could follow a bullish or bearish path, said Molchanov.

The bullish scenario, he said, entails bringing North American gas prices up to the levels of Europe or Asia, in “rough parity” with oil on an energy-equivalent basis” in one of two ways: through the supply side or the demand side.

The supply-side scenario would require “systematically” eliminating North America’s gas glut by banning or “severely” restricting shale gas drilling in North America presumably for environmental reasons (fear of hydraulic fracturing), Molchanov noted.

A demand-side lift for gas would require a “significant” expansion of gas-fired power generation, a revival in the gas-consuming petrochemical industry (especially fertilizer plants) and/or “something along the lines of the Pickens Plan” to boost the number of natural gas vehicles, said the analyst.

“Yet another possible driver would be for the U.S. to build a large amount of liquefaction capacity, thus adding demand from Europe or Asia on top of domestic demand,” he wrote. “We don’t expect any of these factors to move the needle until 2015 at the earliest and even then, it’s quite possible that the incremental demand will do nothing more than offset the supply growth in the meantime.”

Under a bearish scenario, the analyst said European or even Asian gas prices would have to fall to the level of North America’s.

Under a “not particularly credible” scenario, he said, one supply-side theory “would be an LNG [liquefied natural gas] infrastructure buildout on such a scale that it creates structural overcapacity and ends up depressing gas prices in all LNG-dependent markets — mainly Asia, and Europe to a lesser extent.”

Another scenario envisions “a surge of shale gas drilling” in countries outside of North America, which could lead to a gas glut. But this also isn’t realistic anytime soon, said the Raymond James analyst.

For the short term, North America’s gas market will remain a “train wreck,” he said. “The bigger picture, however, is that international gas market dynamics should eventually lead to convergence in global gas prices — ‘eventually’ being the key word.”

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