In the last decade, the competition for owning energy resources aroused synchronously with the significant geopolitical transformations on the world map as it is the central pillar of maintaining and developing the energy security of giant economies, this explains why oil and gas markets are susceptible to global changes and events. Generally, the key relationship that governs the oil and gas market is termed by “Supply & Demand” relationship, so it is important to shed light on the difference between oil markets and gas markets in terms of dynamics, and how the markets of oil and gas interact with geopolitical changes and how that is reflected by the fluctuation of oil and gas prices.
Observing the prices of various markets termed by the name of crude oil like Brent & WTI, it is clear that the prices are nearly unified with very slight differences, and at the same time, the correlation reflects the rate of fluctuations of oil prices between a region and other region is very high, such that if the price of oil increase in a country at the east extreme of Asia it will be observed that the oil price will increase in the same manner at Canada for example.
On the other hand, it is observed that there are clearly different markets for the gas commodities in the way of pricing, for example, you can find the prices of gas in Asia are triple that in Europe and that America has the least prices. For gas markets the difference in prices is very high with the absence of correlation of fluctuation also, say for example a tornado stroked America and that supply of gas are hindered and the demand increased this will influence the price of gas increasingly for America alone, but it will not change significantly for Korea that is buying LNG (liquified natural gas). The point with gas is that it is a commodity that is not easily transported and stored, that different gas markets evolved around the world.
While in Asia, where most industrial countries import their needs from LNG suppliers that are limited in number and represented dominantly by countries for example Qatar Gas, this reduces the chances of competition and thus enables suppliers to control the prices of LNG. This type of LNG market is termed by Oil Linked Market which is characterized by long-term deals and very high prices.
Lorem In America and a part of Europe, gas prices in retail markets reflect competition between internal suppliers. For example, the diversity in producers in Texas creates a competitive reflection on the prices, and as it is known as the competition increases the prices of gas tend to approach the ceiling “cost of production”. In this type of market which is termed by (Gas to Gas markets), the customer has the chance to choose between multiple suppliers which result in liquidity of the market and thus maintains prices as low as possible.
Briefly, Gas-to-Gas markets are achieved if the suppliers of gas are abundant “diversity” and not far away from customers, adding to that the presence of good regulators and free markets (liberalized). Other than that, it is called an Oil-Linked Market or Subsidized market.
written by: Ali Nasser
September 21, 2022
