Top Gas Exporters Convene in Bolivia

Top Gas Exporters Convene in BoliviaTop Gas Exporters Convene in Bolivia

Top officials of major gas producing countries gathering this week in Bolivia will face a harsh reality: Expanding supplies of the fuel are giving global buyers greater sway over purchase and contract terms.

This week’s Gas Exporting Countries Forum, which aspires to be the OPEC of natural gas suppliers, is expected to bring energy ministers from Qatar, Russia and Venezuela to Santa Cruz, Bolivia, as market oversupply reduces revenues, Reuters reported.

Iran’s First Vice President Es’haq Jahangiri and Oil Minister Bijan Namdar Zanganeh are expected to attend.

These countries are increasingly competing with exports from and prices set in the United States, which is on track to become the world’s third largest exporter of liquefied natural gas after Qatar and Australia.

That has “buyers in a better position to make contracts with shorter terms and more customized to their demand profile, without risking money in high take-or-pay clauses,” said Mauro Chavez, a senior research analyst at consultants Wood Mackenzie.

At least 25 countries are now capable of receiving LNG supplies and new re-gasification plants are expected to start operating in the coming months, giving buyers greater flexibility and increasing competition for suppliers.

Even though LNG represents only about 10% of the world’s gas trade, new suppliers are willing to offer sweeter terms to customers, roiling traditional markets and turning up the heat on some producers trying to hold onto more rigid terms.

The United States has been the most aggressive in shaking up the market, through flexible contract terms.

The United States’ rise as a force in global LNG markets and its growing gas sales to Mexico via pipeline have contributed to greater price uncertainty, according to analysts.

Attendees at the gas forum might work on “a methodology for determining gas prices in contracts”, which would promote more stability, Bolivian Hydrocarbons Minister Luis Sanchez said earlier this month.

In markets such as the Caribbean, some sellers are customizing their gas supplies by linking contracts to fuel oil prices, which is also used for power generation.

“I don’t see a situation where the price of LNG would be very high. The price of LNG will be very competitive in the mid-term and in the long run,” said Edgar Almeida, professor of the Instituto de Economia UFRJ in Brazil, flagging other market entrants such as Mozambique.

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