Italy's ENI is the biggest oil and gas company most people have never heard of. although it's bigger than most companies who share it's heritage of national oil and gas champion such as Statoil, Pemex, Petrobras, PDVSA etc.
ENI has always been bigger in gas than most energy companies, going back to being one of the Soviet Unions first gas customers, followed by gas links to Norway and Algeria. In the European space, what CEO Paolo Scaroni says about gas prices should be listened to.
Crude oil prices may be showing signs of a recovery, but natural gas prices will stay depressed for years to come, the head of Italian energy company ENI SpA said in an interview on Tuesday—and the grim price outlook could force energy companies to rethink some investments in new gas projects.
Given ENI's long links to oil indexed Russian gas, we should listen up to this:
The price of gas has traditionally tended to take its cue from crude prices. But while oil has more than doubled since its lows of late 2008, the price of gas has lagged far behind...
Whatever the long-term outlook for gas is, some experts note a fundamental change in the market—a "decoupling" of oil and gas prices, particularly in the U.S....Oil now costs more than $75 a barrel, while the equivalent amount of natural gas costs just $25. "I don't see that gap closing any time soon," Mr. Scaroni said.
But there is now a big disparity between the long-term contract price of gas and the spot price.
Mr. Scaroni said that 18 months ago, he would have said the European market for natural gas would grow by 2% a year, as domestic production fell and demand for the clean-burning fuel rose. At that time, LNG cargoes were selling in the Far East for $20 per million BTUs, he said.
Since then, the demand outlook has changed dramatically. Germany is poised to backtrack on its decision to phase out nuclear power, meaning less demand for gas in Europe's largest economy, he said. Meanwhile, it is likely that the same technology that has been used to open up shale gas in the U.S. could now be used to develop unconventional gas resources in Europe, meaning more supply.
And of course ENI is buying up shale technology via it's holding in Quicksilver Resources Barnett Shale interests.
Let's go back to "the big disparity between the long-term contract price of gas and the spot price".
We've said here from day one, before even NHO had heard of shale that buying gas or power on a long-term contract is the surest way to a) pay way over the odds and b) enrich any energy consultant who advised it.
And the market is still at it. October day ahead gas is having a modest revival as it usually does this time of year on the back of slightly cold weather in the UK and early US snow. Q4 is traditionally the most volatile based on the misanthropic hope of gas traders that we'll freeze to death. By Q1 2010, reality usually intrudes and we see massive sell offs even when winter really bites. A fixed price today for one year from November would mean for example paying 46.41 for next October when this October is only 23.3 so far.
Whatever uncertainty there is about future gas prices, any idea of a 100% increase by next October is a) unlikely b) ludicrous c) disingenuous or d) fraudulent. Or all of the above?
