Increased Gas Exports, but What About Prices?

Abstract

Gas exports account for a rising share of Norwegian petroleum revenues. International gas spot prices have traditionally tracked oil prices with a lag. After the financial crisis, international gas prices remained low longer than oil prices. US natural gas prices are still low, while gas prices in Europe and Asia have edged up again. In this commentary we take a closer look at recent years’ gas price developments and perform a statistical analysis of whether the link between gas and oil prices has changed. The results of the analysis indicate that there is no longer a relationship between oil and gas prices in the US, but that spot prices for gas in Europe are tracking oil prices as closely as before the financial crisis. Prices for Norwegian gas have largely been linked to the price of oil in long-term sales contracts, with only a small fraction of gas sold at spot prices. A number of Norwegian gas contracts were renegotiated in 2009-2010 as, at the time, export prices were considerably higher than European gas spot prices. As a result, there was a certain shift away from indexing export prices to oil prices and towards linking them to gas spot prices in Europe. However, we do not find evidence to support a claim that Norwegian gas prices have become substantially less sensitive to changes in oil prices and substantially more sensitive to changes in European gas prices in the past two or three years. We forecast Norwegian gas prices to be relatively high ahead if oil prices and European gas prices remain high as futures prices currently indicate. At the same time, futures prices suggest that European gas prices will be so high in the coming years that Norwegian gas prices will not be particularly affected if a larger share of exports were to be sold at spot prices.