World’s two largest Liquid Natural Gas (LNG) manufacturer Royal Dutch Shell PLC and BG Group PLC are planning a merger valued at the region of $70 billion. The energy experts said, the announcement came at a time when consuming of LNG are at their lowest point in the region where people use more LNG than anywhere in the world.
According to the market experts, the price of LNG was much higher in Asia than the EU and America, because of the increase in demand in countries like Japan and China. According to the International Group of Liquefied Natural Gas Importers, three-quarters of the world’s LNG demand comes from Asia. But market experts said, the price of LNG is plummeting in recent months, as oil price was also plummeting around the world. The market experts said, the sale of LNG in Asia are mostly based on long term contracts, which could sometimes be as long as 20 years. Energy market experts said, as oil prices are related to LNG, plummeting oil prices and new supplies are pushing the price down.
In Japan the demand of LNG has increased after the accident in their nuclear plant in Fukushima, which has pushed the LNG price up. According to the recent market data, in February price for LNG was $20 a million British Thermal Units (BTU), which dropped to $7 a million BTU`s.
But when asked Shell and BG executives didn’t show any concern regarding the dropping of oil prices and their merger. But BG Chairman Andrew Gould said, “In the lower-price oil environment that this industry is facing, there will be strength in scale.” The market experts said, merger of these companies will dominate the future LNG market, as two of the biggest user of LNG India and China will increase their LNG use. According to them, together these companies will produce 45 million tons of LNG, which is 20 percent of the global production of LNG.
The market analysts said, both companies will not make any profit, if oil price does not go up to $90 per barrel. In recent times oil prices dropped as low as $57.87 on Friday. It was also reported that LNG use in Europe had declined in recent times due to the current recession. But in a statement BG said, they are expecting the LNG market to become more volatile over the next few years. BG said, though there is going to be new markets for LNG in Egypt, Jordan, Pakistan, Philippines and Poland, as new suppliers are getting into the market, the market will remain volatile.