Azerbaijan, Baku, Feb. 24 / Trend /
Ellada Khankishiyeva, Trend Analytical Centre Head
The discussions about the need to develop a new pricing mechanism for gas, when the prices on oil and gas are determined independently of each other, are being held several years. It is notable that this topic appears when spot prices on gas are reduced.
On February 22 spot price on gas at the British National Balancing Point (NBP) reached $382.6 per 1,000 cubic meters, reducing from record $600 per 1,000 cubic meters in early February. Rising in temperature will help to further reduce the price on "blue" fuel on the European stock exchanges.
The price on gas was $92.3 per 1,000 cubic meters on U.S. stock exchanges. The prices on gas in the U.S. last year dropped by 32 percent and renewed a two-year minimum. The decrease in prices was caused by an increase in supply of this fuel. According to Barclays Capital preliminary estimates, in 2011, gas production in the U.S. increased by 10 percent and may rise by 4 percent in 2012. Thus, the experts expect a further decline in gas prices.
At present, exporting countries determine the prices on natural gas proceeding from the oil price and the so-called replacing oil products, such as fuel oil. For example, a large Russian company Gazprom's gas price in the long-term contracts is connected with oil quotations with a lag of 6-9 months Accordingly, the fluctuation in oil prices leads to a change in gas prices. At the same time, this connection is the guarantor of the predictability of prices. There is no better formula for calculating the gas price in the world yet.
The countries - importers of gas purchasing gas from a supplier through the contracts, mainly, long-term ones, are not always satisfied with such a formula of gas price. Disputes sometimes reach the arbitration tribunal. In their view, there will be a fair price if market-based components are taken into account and increase the share of spot and swap transactions for more than 25 percent. European companies' push has already made the Russian "Gazprom" to reconsider the gas agreements with several European partners. As a result, the Russian concern has agreed to take into account the market gas price in its price formation.
This time Turkey acted in terms of the differentiation of oil and gas prices. It is going to appeal to the partner countries on the energy market. "If the current exploration and oil and gas production are conducted on a different formula and the cost of these processes is not the same, then why gas prices are still dependent on oil prices?" Turkish Minister of Energy and Natural Resources Taner Yildiz said.
At present, the price on Azerbaijani gas exported to Turkey is $330 per 1,000 cubic meters. Turkey also imports gas from Russia for $ 450, from Iran for $420 per 1,000 cubic meters.
Yes, the gas price is now lower than that oil. The main reasons for this in the world practice are such breakthroughs in the technology such as horizontal drilling and hydraulic layer fracturing. Moreover, many companies get associated gas during oil production. High oil prices push the companies to drill new wells and increase production volumes. As a result, the production of associated gas automatically increases. This leads to an increase in supply in the market.
The data from SOCAR's audit report as of 2010 show that as of 2010 SOCAR's prime cost of oil increased by 20.8 percent, while natural gas reduced by 11.3 percent. The reduction of expenditure (amortization expenses, salaries, social charges, expenses on consumables, etc.) led to a reduction in the cost of 1,000 cubic meters of SOCAR's gas at 11.31 percent to 40.07 manat in 2010 compared to its level in 2009.
But whatever the partners' arguments would be in favor of reducing gas prices - low cost or low spot prices, the main trump is eternal thing between seller and buyer, namely, the seller wants to receive maximum money for the goods and the buyer is willing to pay the minimum. However, taking into account the current situation in the global energy market, one can conclude that gas producers are lucky today.
The official exchange rate is 0.7863 AZN/USD on Feb. 24.