Thanks to its relatively friendly impact on the environment, natural gas usage has evolved to the point that puts forward natural gas as one of the main energy sources worldwide. Aside from the fact that natural gas is widely spreading all over the world and that securing natural gas supply has become a matter of great concern to all energy market players, natural gas still suffers from significant price variations and long-term supply dependency, which results in limited competition, less flexibility and reduced diversity of supply.
In particularly compared to liquid fuels, natural gas lacks certain features required for commoditization. These features are found in the so called “perfect competition” market structure and include among others, standardization or inconsiderable differentiation of the sold product, neglected price margin, diversity of supply, increased cost and hence price stability, availability, and obtainability. In general, product commoditization shall result in a number of benefits not only for the end users, but as well for all involved players along the whole processing value chain.
The aim of this paper is to investigate whether or not natural gas can be classified as a commodity and the forces that are currently affecting this commoditization process.
In doing that the paper will study the effect of natural gas transportation infrastructure costs, long term versus spot market contracts, storage methodologies, LNG compared to natural gas from a commoditization perspective and security of supply requirements. The paper will also discuss the reasons for the increased natural gas price differences worldwide. Finally, it will highlight some of the existing eco-political forces that might affect the pace of natural gas commoditization taking into account the effect of subsidy and trade barriers in certain regional markets on the commoditization process.