STAVANGER, Norway (Bloomberg) -- Natural gas is rapidly becoming one of the most traded global commodities, but that doesn’t mean it will have a global price, according to Royal Dutch Shell.

 

While the fuel can be transported anywhere on LNG carriers, it will probably remain regionally priced for the time being, with some contracts continuing to track oil, said Roger Bounds, senior V.P. for global gas at Shell. Prices will depend on location, regulation and infrastructure, as some countries replace coal in electricity generation to cut carbon emissions.

 

“I shouldn’t say it’s not possible, but what would it take for such a price to be possible?” Bounds said in an interview in Stavanger, Norway. “We have some way to go.”

 

For a global gas price to emerge, pipelines would need to shed some interstate regulations like in the U.S., trade data would need to be more transparent and widely available and buyers and sellers would need more confidence their contracts will be respected, he said. Europe is partly on that path with some hub pricing, he said.

 

“We’re somewhere back from that in a number of other markets,” Bounds said. “We’re not that close to that in India, we’re not close to that in China.”

 

Interchangeable Sources

 

Until then, there will be many two-party gas trades. Additionally, conventional contracts that link the price of gas to the price of oil will remain, partly because the two will become increasingly interchangeable as energy sources.

 

Those changes to the global gas market structure will come amid a renaissance for the fuel, Shell says. It will probably be used more because when transitioning to a lower-carbon economy, gas complements renewable energy sources, which aren’t yet able to consistently provide uninterrupted electricity to customers during peak periods.

 

Additionally, some European countries may introduce a floor on the price of carbon that could hasten a switch to gas-fired power.

 

“There’s been a period of weakness in carbon prices in Europe but in the near future we’re likely to see that starting to bite,” Bounds said. When that happens, “we think more gas will get drawn into the system,” he said.

 

LNG Consumption

 

European Union carbon has dropped 85% from its peak in 2006 as lawmakers struggle to deal with a glut. The price hasn’t been high enough to rid Europe of coal use.

 

Bounds expects global LNG consumption to climb by 5% to 7% a year. A trend of declining usage in Europe may also reverse due to the higher demand, with supply coming from U.S. export terminals and fields in Russia and North Africa. Shell CEO Ben Van Beurden said on Monday that he expects gas demand to grow at twice the pace of oil.

 

At the moment, there is a global glut of natural gas as producers scramble to gain a foothold in the expanding market. That will probably balance out in the early 2020s, said Bounds.