Effects of falling oil prices on the gas projects

Effects of falling oil prices on the gas projects

Senior Iranian energy economics expert Dr. Alireza Soltani for Trend:

The gas market is, at the moment, more volatile than the oil market and is facing more recession. This situation may continue in the short-term and even in the mid-term. Unlike the oil market in which bust or boom could occur within a short period of time, the changes in the gas market happen with a delay, but lasts longer due to structural differences in trade and transaction.

If recession takes place in the gas sector for any reason, emerging from such a situation will be hardly possible. This issue is related to the identity of gas trade and in all stages and sections of production, trade, and consumption, the trend of changes is slow based on long-term equations. The process of formation of gas purchase and transmission contracts is long.

Formulas for setting gas price are also defined and implemented in a relatively long-term periods. Plans and projects for gas transmission both in pipeline and LNG forms are also long-term and complicated due to high volume of investment on one hand and economic and financial planning by exporters and buyers and even countries through which gas is transited on the other hand.

These conditions can guarantee countries which are involved in gas trade, continuous fluctuations and moreover can be harmful for buyers during falling prices and for sellers during rising prices. However, it can be said that trade of any kind of goods has its special balancing mechanism considering its dominant factors.

Taking this into account, the effect of falling oil prices over recent months on the gas market can be analyzed. Specifically, the falling oil price has nothing to do with prices of gas products which are carried both via pipeline and in the form of LNG, because gas price is defined based on formulas and long-term mechanisms in related contracts and not based on daily developments.

Although this issue has been changed somehow in new gas contracts, meaning that the parties take some pricing indicators, especially oil price, into consideration, but such methods are used in one-year or two-year terms.

In this method, current price of gas based on a criterion such as oil price over the 12 months ended the target year plus a forecast price based on a criterion such as oil price for the 12 months after the target year are considered and gas price is defined within a range which has been specified in the contract.

It is obvious that in setting gas price, the current price is not the only criterion, but a set of factors and variables, such as expended capital, time period of implementing the contract, and even political and security factors in regional and global relations, as well as bilateral ties between countries are also important.

However, oil price fluctuations cannot be disregarded in the gas projects. This effect, though may not be prompt and not effective in the short-term, but will show its effects in the mid-term over the course of 3-5 years.

Firstly, oil price, as the indicator for energy price in the world, affects oil investment projects and affects both quality and quantity of plans which are being studied for gas transfer, as well.

In fact, low oil price lowers incentive for investing in gas transfer plans. Low investment on one hand and high demand on the other hand affect the gas market future.

Also, prices for gas transfer projects which will come on stream in the future are considered low, taking psychological conditions regarding current oil prices. So, it can be deduced that with current low oil prices studying and implementing gas transfer projects are done slowly and even investments may be stagnated.

Gas price is considered low in contracts which are concluded based on low oil price. In such a situation, some countries like Iran may have not been inclined to seal deals for transferring gas to some regions, including Europe.

Therefore, under the current circumstances, one cannot be hopeful for concluding such contracts. Contracts of this type will be implemented with prices which satisfy both sellers and buyers and are economically justifiable (due to high costs of investment in gas transfer projects).

Subscribe to Trend in Google News! Subscribe
Balkan Shipbuilding Yard in Turkmenistan to build  new ships
Balkan Shipbuilding Yard in Turkmenistan to build new ships
Turkmenistan's TML eyes co-op with Ukraine's Smart Maritime Group
Turkmenistan's TML eyes co-op with Ukraine's Smart Maritime Group
Private sector is actively involved in construction of administrative center in Turkmenistan
Private sector is actively involved in construction of administrative center in Turkmenistan
Loading Bars
French EU lawmaker Collard joins far-right presidential candidate Zemmour
Pfizer, Moderna boosters up to 90% effective against Omicron: CDC
Turkey’s Turkovac to be tested as booster for Pfizer-BioNTech jab
Guinea junta establishes council to lead transition to elections
Visit aims to rebuild trust with Lebanon: Kuwait foreign minister
UK records 76,807 new COVID cases, 297 deaths
EU Commissioner for Energy to visit Azerbaijan
Pfizer CEO sees annual COVID vaccine rather than frequent boosters
US Dept of State plans to begin evacuation of US embassy staff from Kiev on Jan 24
Blast hits western Afghan city of Herat, killing at least six
Georgia’s coal imports from Kazakhstan triple
Presidential administration of Georgia submits candidates for election commission to parliament
Remittances to Uzbekistan in 2021 totaled USD 8 bln
Iran seeks long-term, all-out ties with Turkey - Raeisi
Massive California wildfire triggers evacuations, closes highway
Italy's Berlusconi decides against running for president
Azerbaijan, Iran talk military cooperation
Azerbaijani chess player continues to lead in Tata Steel Masters tournament
Serviceman of Azerbaijan Army dies in non-combat conditions
Number of Turkish jobseekers in Uzbekistan revealed for 2021
UAE stops all private drone activities, light sports aircrafts
Airbus cancels $6bn contract with Qatar Airways
German conservatives elect right-winger Merz as new party leader
Non-hydro renewables overtake hydro for first time in Turkey
Record-breaking indicators in non-oil sector - what is secret to success of Azerbaijan's economic strategy?
Iran shares data on exports from Aras Free Trade Zone
Kazakhstan names damage caused to business as result of large-scale rallies
Georgia publishes COVID-19 data for January 22
Iran’s Bahar Azadi gold coin price dips
India now allows 6 people to register on one number for Covid vaccination
Azerbaijan shares data on number of vaccinated citizens
Azerbaijan confirms 1,614 more COVID-19 cases, 610 recoveries
Azerbaijan changes rules for quarantine control of Covid-19
India's Karnataka approves design & launch of nano-satellite by govt school students at Rs 1.9 Cr
‘One Modi cannot change a country, need more icons like him’: Himanta Biswa Sarma
Seizing of illegally stored weapons from citizens continues in Kazakhstan - interior minister
Azerbaijani border serviceman commits suicide in military hospital
Iran unveils details of agricultural export
Kazakh Armed Forces performing tasks to ensure public order in regions with “red” level of terrorist threat
Tokyo hits record 10,000 COVID cases, Japan over 50,000 for first time
Number of COVID-19 infections in Russia surpasses 11 mln since pandemic began
Kazakhstan developing measures to reform Samruk-Kazyna Fund's activities
PMO records surge in load/unload operations at Iranian ports
S&P predicts gas production growth in Azerbaijan through 2025
Turkmen medical enterprise discloses production data
Azerbaijan to hold auction for Ferrum Kapital CJSC's bonds
Kazakh president talks need to continue work to reveal all circumstances of recent riots
Kazakh oil and gas company to purchase helium via tender
Iran reveals COVID-19 data for January 22
Oil price spikes likely in 2022 amid inventory tightness midyear
7 killed, 16 injured in massive fire in central Mumbai high-rise
Oil demand to be robust in coming years despite net-zero strategies
India reports 3,37,704 new Covid cases, 488 deaths in 24 hours
Number of COVID-19 infections in Russia surpasses 11 mln since pandemic began
OPEC+ focus to switch away from propping up prices
Iran shares data on buy/sell operations at its Mercantile Exchange
Most people feel I-T exemption limit could be raised from Rs 2.5 lakh: India's KPMG
Turkmenistan’s Balkandokma complex doubles cotton yarn sales
Uzbekistan reveals data on agricultural, forestry and fisheries production
Tax benefits to increase disposable income likely in India's Union Budget
Uzbekistan approves procedure for rational use of land resources
S&P discloses inflation forecast for Azerbaijan through 2025
S&P Global Ratings announces forecast for Azerbaijan's budget surplus
Magnitude 6.2 earthquake strikes Unalaska, Alaska
NIOC agrees with Russian companies to develop Iran's oil, gas fields
SOCAR dismisses information about purchasing bitumen plant in Armenia
Kazakh company eyes to import leather products from Uzbekistan
S&P comments on possible swap line between Central Banks of Azerbaijan and Turkey
Oil production in Azerbaijan to moderately rebound - S&P
Georgia discloses its main cement sources of import
Turkmenistan lays out plans for hydrogen energy development
US lawmakers seek litigation at WTO against India on wheat subsidy
Iran, Azerbaijan continue construction of Khudafarin and Giz Galasi hydro junctions (PHOTO)
Climate policy of Uzbekistan: Implementation of measures to prevent climate change and adaptation in most vulnerable sectors of economy
S&P Global Ratings approves Azerbaijan's credit rating at 'BB+/B'
UK Foreign Secretary to meet with Lavrov in Moscow in February
Netaji’s statue at India Gate to be 25 feet high: NMAG director
India to allow arms manufacturers to enhance production
Kazakhstan names Samruk-Kazyna's entreprises planned to be put up for IPOs
Iranian currency rates for January 22
Statistical center of Iran reveals figures of growing inflation
Azerbaijan reduces quarantine period for COVID-19 patients
Kazakh Gas Processing Plant opens tender on manufacturing of parts for pumping equipment
Azerbaijan's Kalbajar - most suitable for winter tourism among liberated areas, agency says
EAM Jaishankar dials envoys in US, Canada after 4 Indians freeze to death along US-Canada border
Balkan Shipbuilding Yard in Turkmenistan to build new ships
Uzbekistan shares domestic COVID-19 data for Jan.21
Azerbaijani oil prices decline
Azerbaijan talks probability of commercial oil & gas reserves at Aypara area in Caspian Sea
GM sets $6.5 bln for in Michigan electric vehicle plants -document
Georgia – Turkey trade turnover up
Subhas Chandra Bose's family members welcome PM's decision on Netaji's statue at India Gate
Kazakhstan talks business support measures related to tax legislation
Iran resumes gas export to Turkey
Central Bank of Azerbaijan fully meets demand at foreign exchange auction
US commits to helping Saudi Arabia, Gulf partners defend against threats from Yemen
NYPD officer killed, another seriously wounded in shooting
Poland, Georgia to hold Joint Intergovernmental Commission meeting – ministry
Saudi-led coalition denies targeting detention centre in Yemen's Saada
Arnold Schwarzenegger involved in car accident
All news