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The Impact of High Oil Prices on Global and Regional Natural Gas and LNG Markets

Oil prices are notoriously hard to predict, but they are an important input in many energy and economic models. This paper explores the effects of different oil price assumptions on natural gas markets (production, consumption, prices in different regions) in the International Natural Gas Model (INGM). Three cases from the INGM are presented: a reference case, a high oil price case and a second high oil price case, where gas-to-liquids (GTL) capacity additions are constrained. The results show that regardless of constraints on GTL capacity additions, higher oil prices lead to higher production and consumption of natural gas. However, when GTL capacity is allowed to expand, higher oil prices generally lead to higher natural gas prices and to less gas consumption in the electric power and industrial sectors as they switch to cheaper fuels and more natural gas is diverted to the production of GTLs.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Security and Geopolitics – Energy Security; Natural Gas – Markets and Prices; Unconventional Fossil Resources –Synfuels

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q48 - Energy: Government Policy
Q42 - Alternative Energy Sources

Keywords: Oil prices, natural gas, LNG, INGM model, gas-to-liquids (GTL)

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI-5

Published in Volume 30, Special Issue of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.