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Gas production to become increasingly capital intensive

Oil&Gas Materials 7 March 2022 11:14 (UTC +04:00)
Gas production to become increasingly capital intensive

BAKU, Azerbaijan, March 7

By Leman Zeynalova – Trend:

Gas production is expected to become increasingly capital intensive despite the technological advancement, Trend reports with reference to the Gas Exporting Countries Forum (GECF).

“We project that the structure of the natural gas market over the outlook period will remain largely geographically segmented. As storage capacities grow and gas grids expand, LNG shipments will be increasingly used to eliminate intra-regional, intra-year price arbitrage. Regional gas markets, which currently have weaker connectivity, are expected to become strongly integrated post-2035, as the rapid development of LNG capacity, as well as transportation and trading networks, including large-scale export pipeline projects, stimulate market integration. Thus, we expect that until at least 2035, American and European markets, as well as the Asian and Latin American markets will remain integrated market regions with the most natural gas liquidity, whereas after that date it is projected that a global gas market will start emerging, with regional differences being less significant,” reads the latest report released by GECF.

GECF experts believe that the long-term trend in natural gas prices will be driven higher by the following: 1) despite the technological advancement, gas production is expected to become increasingly capital intensive, with an increasing demand facing higher LRMC; 2) increasing carbon tax and methane abatement policies will put additional pressure on the cost of using natural gas after coal-switching benefits have been exhausted.

“The market structure in the long-term will likely gravitate towards many instruments traditionally present in the other commodity markets, such as an increased role for trading hubs, growth in the financialization of the natural gas trade and the greater role that settlement trades typically play. However, most commodities trade in hubs with proper infrastructure, which is why futures markets such as the JKM will need infrastructure support. In the longer-term, LNG indices based on growing markets will be more suitable to use as a benchmark, as these markets are striving to develop a gas trading infrastructure that can provide backing for settlement trades,” the report says.

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Follow the author on Twitter: @Lyaman_Zeyn

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