Decline in U.S. Natural Gas Imports is Causing Panic in Leading Exporting Nations

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The world 's biggest natural gas exporters met today (Monday) in Algeria and agreed to index gas prices to oil as shrinking U.S. natural gas imports are causing a global supply glut.

"All ministers agreed and supported that we continue our efforts to achieve indexing gas to oil," said Russian Energy Minister Sergei Shmatko.

The Gas Exporting Countries Forum (GECF) members include Russia, Iran, Qatar and eight other nations that hold two-thirds of the world 's gas reserves. They 've watched gas prices fall nearly 50% in the past two years. Current gas prices of $4 per million British thermal unit (BTU) are about 20 times lower than oil, but are usually around 10 times lower than oil.

U.S. natural gas prices have fallen 28% since December as an increase in the U.S. shale rock gas supply has reduced the need for U.S. natural gas imports. Shale rock gas is retrieved from tight rock formations and its U.S. boom led the country to extract more gas than Russia last year for the first time since 2001.

Russia 's energy giant Gazprom has a five-year plan to take 10% of the U.S. natural gas market share, but U.S. shale gas exploration has put a damper on that goal.

"The influence of shale gas raises the prospect of change on gas markets," Russian Natural Resources Minister Yuri Trutnev told Reuters. "We have a problem with shale gas. This is not only my position, but the position of Gazprom as well."

As the United States becomes a less reliable consumer, gas suppliers aren 't having much luck replacing the lost business.

"This is mostly hurting Russia and Algeria, as some of the Qatari volumes earmarked for the United States now will compete for European market shares, where the two countries have previously dominated," Samuel Ciszuk, Mideast energy analyst with IHS Global Insight, wrote in a research note.

Qatar has so far raised it 's liquefied natural gas (LNG) output by 44% this year, contributing to the growing supply glut.

Gas that is no longer needed in the United States and is redirected to Europe is being sold on spot markets and cutting into the market share of long-term contracts. The biggest gas buyers in Europe, like Germany 's E.ON.AG, have nearly doubled their purchases of spot gas as rising crude prices are making long-term gas contracts expensive.

"A two-tier gas pricing system has developed in Europe," Morten Frisch, a senior partner at Morten Frisch Consulting Ltd., told Bloomberg. "One price level is based on oil-indexed long-term pipeline gas and LNG supply agreements and one based on spot prices."

The gas exporting nations want to shorten that spread.

Algeria 's Energy Minister Chakib Khelil had proposed curbing supply to reduce output, but no other gas exporters supported his idea.

"The producers are living in a fantasy world if they think that they can influence prices by cutting production," John Fahy, managing direction of energy consultant Eras Ltd., told Bloomberg.

Algeria 's Khelil has been the biggest forum member proponent of turning the GECF into a cartel like the Organization of Petroleum Exporting Countries (OPEC), with more control over supply and pricing. OPEC production cuts last year boosted crude oil prices, which hit an 18-month high earlier this month.

"The forecast for the next five years is rather worrying as it displays only weak growth that will bring the demand level in 2013 back to 2008," Algerian Energy Minister Chakib Khelil told reporters Monday. Natural gas prices fell 80% in 2008 when demand slid sharply during the global financial crisis.

Natural gas is currently the second worst performing commodity after sugar in the Standard & Poor 's GSCI Index of 24 commodities.

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