Abstract

Natural gas is swiftly moving from a locally traded commodity in regional markets to a globally traded commodity. This paper describes a numerical model of international gas trade which evaluates the effects of inter- and intra-regional gas trade on demand, supply and price.

Preliminary evidence indicates natural gas prices are 15 to 30% lower in real terms when inter-regional trade occurs and local consumption of natural gas increases relative to fuel oil in the local market.

Natural gas developers or marketers that explicitly consider the inter-regional impacts of gas trade will have a greater likelihood of understanding the risks in marginal projects and are more likely to embrace economic projects and eschew noneconomic projects.

VALUE OF INTERNATIONAL GAS TRADE TO GLOBAL COMMUNITY

"For both economic and environmental reasons, natural gas is becoming the fuel of choice in many markets. … The form of contracts employed, the ease of access of new entrants to the gas business, the pricing formulas and the use that both suppliers and consumers can make of gas transmission and distribution system will all affect the terms under which old and new gas comes to the marketplace. All these factors will have a major impact on whether gas use picks up and if so, at what pace"

Many countries with undeveloped indigenous natural gas resources are anxious to develop new markets for their gas. These countries recognize that delays in developing these resources result in a large financial cost, slowing their own development as a nation. For this reason, many are now offering financial incentives, such as tax holidays, grants, loan guarantees, reduced royalty and accelerated cost recovery to private and public companies that will develop and market their indigenous gas resources.

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