Thursday, January 14, 2010

We're #1!

The year 2009 was marked by increased U.S. gas production and decreased Russian output, which resulted in the U.S. overtaking Russia as the world's leading gas producer.  Russia is still the world's largest gas exporter, although given the fact that many of its customers are chafing under long-term contractual agreements that are pegged to the price of oil, that status might not last forever either. 

The reasons for this change in status have much to do with shale.  As shale discoveries in the U.S. increased gas output, they drive down gas commodity prices.  Domestic gas consumption has remained relatively steady through the recession (down about 1.2%) because of increased use in power generation because of the lower gas prices.  Europe remains Russia's largest gas export market, but because prices are higher and often contractually fixed, the recession-driven decrease in consumption was not offset by increased use in power generation.

With the creeping globalization of the gas market because of LNG and newly discoved gas resources in other nations creating new sellers of natural gas and a legitimate spot market for the commodity, Russia's gas supremacy likely will slip further.

No comments: