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European Natural Gas Prices: Getting Higher?

by Carl Steward
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Natural GasThe cost of natural gas in Europe is getting more expensive

Prices for natural gas have increased significantly over the past few years, especially in the US. For instance, the average wholesale price of natural gas in 2010 at the Henry Hub (a significant gas trading hub in Louisiana) was $8.85/mmbtu, but it was only about $4.50 as of the beginning of 2013. (As a point of reference, keep in mind that oil prices averaged $97 in 2008 and are currently back near $97)

The unanticipated increase in domestic shale gas supplies is the main cause of this. Although shale gas is a popular idea, no profitable extraction methods exist. The supply of this has expanded significantly in the United States due to new horizontal drilling techniques, which has led to a significant decline in natural gas pricing in comparison to oil. The worldwide gas market supply has not been impacted by these strategies to the same extent as the U.S./Canada market. Gas can only be transported by pipeline or, if it is turned into liquid, in LNG (liquefied natural gas) tankers. The market in the United States and Canada is highly competitive, and price-driven, and establishes its own natural gas prices.

According to a Monday report from Australia’s ANZ Bank, severe shortages at crucial supply points drove up the price of natural gas in Europe. last week it had its largest weekly gain in two months. The restart of the Freeport liquefied natural gas terminal in the US has yet to be finished, and as Europe braces for further reductions in Russian gas flows as a result of this week’s maintenance shutdown of the Nord Stream 1 gas pipeline, Norwegian gas flows are also expected to be restricted into September.

European Natural Gas Prices

Shale gas and oil exploration have a number of issues in Europe. First of all, the majority of potential basins are located in the nations of eastern Europe. Normally, this wouldn’t be an issue, but eastern European nations aren’t known for upholding their end of agreements. In the modern era, the conflict between Romania and Sterling Resources serves as a good illustration of this.

Nations that break their contracts severely hamper the exploration of oil and natural gas. People won’t invest in the region if a company can’t expect to ever recoup its initial investment. Argentina is a fantastic illustration of how contract tampering could appear from the perspective of investments. Watch the price of American Petrogas while Argentina issued subsequent press releases on nationalizing YPF. Adding to the aforementioned issue, European nations have a history of being erratic. This is in terms of how much they actually want to search for oil and gas. Recall that France prohibited hydraulic fracturing.

Due to decreased hydropower supply and maintenance at French nuclear power reactors, electricity prices in France and Germany reached record highs, exacerbating the continent’s energy crisis. The absence of service firms with horizontal experience is another issue that European oil and gas explorers must deal with. Drilling horizontal wells is primarily what American service businesses do.

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