Gastech News spoke with David Brookes, Director, Head of EMEA Gas Trading at Citigroup Global Commodities about his views on LNG pricing and trading in Europe.
Gastech News: As more LNG is coming to the EU, what are the key opportunities for traders?
David Brookes: With more LNG coming into Europe, natural gas is becoming a global commodity. Just like oil, natural gas can be transported across the globe, showing a different market scenario from what we have seen over the last 15-20 years. Moving forward the gas markets are going to become a lot more interrelated and there will be more opportunities to optimise LNG across the globe as well as trading around a variety of hubs.
This is going to lead to more volatility in Europe because everything is going to be traded in dollars on a global perspective. In addition, traders are going to require new products to maximise their activities. One of the big factors involved will be re-gas liberalisation in Europe. At the moment, it’s very difficult for everyone to have access to re-gas facilities as there are some barriers to entry in trading. I think there are numerous questions that need to be answered and hopefully, during the European Autumn Gas Conference this year we’ll be able to answer some of those.
Gastech News: How will U.S. LNG imports change the way LNG is traded?
David Brookes: I think the main aspect is going to be the convergence of Henry Hub, NBP and TTF. During times of oversupply and undersupply, that cost of bringing LNG from the U.S. to Europe is potentially going to act as a floor depending on the over-running fundamentals at the time. One of the other aspects is that it should improve liquidity in the Far East as well. One of the difficulties of the last few years has been getting liquidity in markets other than the U.S. or Europe, and I think more US LNG will hopefully promote liquidity across the globe.
Gastech News: During the Trader’s Day at the EAGC last year, some traders felt that gas and LNG are becoming increasingly interrelated and there will be short-term trading and competition between LNG and gas. Do you agree?
David Brookes: I do agree, and I think we’re already seeing this happening. When LNG first started arriving in Europe in 2007/2008, we saw a very high correlation between Henry Hub and NBP for a couple of years before fracking began and brought American gas prices down significantly. Now we’re seeing a resurgence of that. With the ability for the U.S to export its oversupply to Europe, it’s able to export lower gas prices into Europe and beyond. This is at the same time that Australia is ramping up its production, so there’s an even bigger oversupply across the world.
Gastech News: It is has been recently discussed that with the threat of US LNG coming into Europe, Gazprom could lower the price of gas, just as Saudi Arabia did with oil, to protect assets in its most profitable region and launch a price war. How do you see gas prices in Europe in the short term?
David Brookes: Gas prices are being affected by the impact of US LNG, so the question is, does Gazprom still want to continue to be the major supplier of gas to Europe? In order to do that, it has to compete with the US, Qatar and Australia and will have to reduce prices to keep its market share. The marginal cost of producing gas in Russia is significantly lower than their competitors, so it has the ability to do that. Let’s see what they do.
Gastech News: What are you most looking forward to at this year’s EAGC in The Hague, and what is your final message to our readers?
David Brookes: I’m looking forward to the discussions around the coming change in the gas market. There’s a lot of price movement that has happened since the last conference and the industry is suffering to some extent, especially on the production side. However, I do believe it’s a transition to a very exciting global market and I’m looking forward to speaking to people who are attending the event, to hear their views and opinions.
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This year’s EAGC conference theme is “Beyond COP-21: Rethinking European Gas without the Global Energy Mix”. Download the EAGC 2016 brochure to view all sessions and speakers.
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