Global Natural Gas Market - Mar 2

[dan_s]

It is my belief that by 2020 the U.S. natural gas market will be much more influenced by the global gas price. Why? because by the end of 2020 our export capacity will be ~19 Bcfpd just based on pipeline and LNG export facilities that are on-track to be completed over the next three years. - Dan

From Gaffney Cline and Associates on 3-2-2018:

Natural Gas - LNG – Helping the world “weather” the storm!

Recent bulletins have been heavily focused on gas for power generation. However, the stark weather events of the past few months globally, have meant that LNG has begun to play an increasingly interesting and important role in the energy mix across several continents. However, it is not keeping the lights on this time that has created the need; it is largely a result of the huge heating load that the northern hemisphere winter has unleashed.

China’s rise to the world’s second largest importer of gas was fueled this winter by a government program to raise gas usage to clean the country’s polluted air, with millions of homes switching from coal to gas for their energy needs. This has resulted in what we expect to see as continued seasonal spikes in LNG prices, but also structural demand changes as other South East Asian demand centers will likely follow suit.

In December, an extreme cold snap in the USA resulted in what could have been perceived as “Russian LNG” finding its way to Boston, ironically at the same time as US LNG was leaving Sabine Pass on the US Gulf Coast.

Followers of the gas game would not have missed the following significant announcements this week:

•The cold gripping the UK due to the “Beast from the East” and “Storm Emma” resulted in a first emergency “gas deficit” warning by National Grid in 8 years (heightened because of the closing down of the Rough storage facility and other operational issues with the interconnectors and reduced European supplies), causing within day gas prices to hit a within day peak of 275p/therm at one point, a 10 year high and significantly above a previous spike of c.100p/therm in 2013.

•In eastern Australia, despite warm temperatures, a different type of problem in terms of domestic gas deficit caused in part by a heavy reliance on coal seam gas and other conventional gas sources. The gas supply demands of the East Coast LNG projects is leading a consortium including Japan’s JERA and Marubeni to consider reversing the usual direction of LNG, by supplying it to Australia (ironically the second largest exporter of LNG). This is by no means the first concept to consider imports LNG to eastern Australia, and was something evaluated by GCA in 2015 as the gas crunch started to bite.

•With other emerging buyers of gas, especially those undergoing and aiming to capitalize on deregulation of gas markets (such as Indonesia, Malaysia, Vietnam, China and Korea in addition to Japan and China), demand side effects could have large knock on effects on the global LNG trade.

•All of the above demand side factors put into the shade the fact that this week another natural effect of an earthquake has resulted in the Papua New Guinea LNG plant being shut in for the next six weeks.

It seems that wherever we live in today’s world, we are having to get used to the reality that LNG is playing an increasing role in helping to “weather” the storm in global gas markets. As LNG becomes increasingly globally mobile, and easily tradeable, expect to see increased price volatility in the short term driven by LNG importers who are not only highly weather sensitive, but also price sensitive. Whether this will lead to longer term stability relies on LNG’s ability to increasingly help the world to stay warm…