Short-term LNG deals cut energy prices: Analysts

The opportunity to carry natural gas through LNG terminals makes short-term deals reasonable, analysts say. REUTERS photo

Easy transportation of liquefied natural gas (LNG) with ships enables countries to buy cheaper natural gas with short-term contracts, which would also be an opportunity for Turkey to reduce its energy spending. 

The country, which is desperately seeking to reduce its energy spending and dependency, has lagged behind its European counterparts, which have begun to buy natural gas at 15 to 22 percent reduced spot market prices.

“According to today’s research, there is a 22 percent difference between oil-based gas prices and the spot market price,” International Energy Agency chief economist Fatih Birol said. 

The shale gas revolution in the United States has pulled gas prices down – with a potential to go further – and the easy transportation of LNG to many corners of the world has rendered long-term contracts meaningless. 

“Some of Turkey’s existing contracts will be negotiated soon. I think Turkey might get a serious reduction, with the winding down of developments in the global markets,” Birol said.
 
According to Birol, it’s obvious that LNG will play an important part in energy’s future. He estimated its usage would double from the amount used in 2010 – 230 billion cubic meter (bcm). Today, around 350 bcm are used. 

Therefore, if Turkey speeds up its LNG infrastructure investments, he said, it could benefit from the emerging opportunities more easily, meaning cheaper energy for everyday use. Sticking to shale gas research is another leg of the plan he proposed. 

Another energy analyst pointed out the flipside of the coin, noting LNG contracts would harm Turkey’s only upper hand in energy relationships: the geopolitical advantage. “If we switch to LNG, the idea of giving up pipeline gas in other words, it would take [away] our geopolitical dominance,” he said.