In past issues of Directions, we've discussed the domestic factors—such as weather, inventory and storage, related energy markets and the economy—that influence North American liquid natural gas (LNG) prices. Globally, some of those aspects, while still affecting gas costs, work a bit differently.

Price can depend on certain major weather patterns. Natural gas prices in the U.S. can be affected by seasonal considerations, but typically don't respond to short, sharp weather effects in other parts of the world.

"But a colder-than-normal winter in Europe may put upward pressure on prices as the season develops," explains Nick Fulford, International Business Development Director at Centrica Energy. "Global gas trading patterns need time to adjust to changes in demand, chiefly because redirecting LNG cargoes is a complex undertaking, and the ships take several days to reach their destination. Two or three years ago, Spain found itself very short of gas during a severe winter and paid a significant premium for additional LNG cargoes, which had a marked effect on other European countries. These days, with increased interconnection between European and North American markets, the effect of such a market event would be felt more widely. In the summer of 2007, a significant drop in Norwegian production coincided with an earthquake in Japan, which led to the shut down of some of their nuclear facilities and more demand for gas-fired power. The combined effect was a global jump in gas prices, arguably heralding the start of a new era for the global gas market and showing that it had truly come of age as a global commodity."

Because energy consumption is so closely correlated to Gross Domestic Product (GDP), global economic factors can play a significant part in setting both gas and oil prices.

"Most energy experts agree that a major downturn in the U.S. economy would have a downward impact on natural gas and oil prices, but of course, this is only one of many factors, and the rapidly growing economies of China and India may have a mitigating effect," Fulford says. "In addition, because oil and, increasingly, gas, have become global commodities where the relative value of different currencies skews the apparent cost, continuing weakness in the U.S. dollar will put upward pressure on oil and natural gas prices in nominal terms. Production costs related to other global commodities, such as steel and a range of industrial services, are also increasingly under pressure."

Despite a range of weather, economic and other conditions, there are signs that LNG prices could be constrained in the long term. "Due to very high energy prices during the last few years, exploration activity has been very high and new resources are set to come to the market over the next few years," Fulford explains. "In particular, unconventional gas reserves in the U.S., such as CBM, shale and tight gas, are now becoming attractive, owing to both higher prices and new technology being applied. This may serve to balance demand and prevent large increases in natural gas prices, especially if the economy also takes a turn for the worse. The other major factor is production levels in the traditionally gas-rich areas, like the Gulf of Mexico, where much of the production is well into decline."

That stated, the rate of decline has been less than some experts had predicted, and a range of life-extending technologies are constantly being sought out to improve economic production from these older gas fields.