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Global natural gas pricing and investments

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Oil price, Coronavirus

There should be no brownouts, as the Americans would say in 21st-century cities. It means there should be no partial light outs in cities. Ditto the rural dwellers globally. Warmer summers increase electricity consumption for cooling, and colder winters increase electricity consumption for heating. Which of these known sources of power coal, oil, natural gas, nuclear, hydro, and solar and the wind is the market shout out going for? It appears it is natural gas. Natural gas is becoming the most prevalent home heating fuel and the most widespread fuel used to generate electricity. Some have dubbed it the wonder fuel. Over a decade ago, it was unimaginable that it would become a preferred source of power. Natural gas fits many needs for power generation, considering it is more economical and produces only half of the carbon emissions of coal. It is in toughest competition with the renewables that may wait for some decades to come.

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Is natural gas as a source of power production slashing costs for the global poor? In abundance, there it is, cheap and reliable. Natural gas currently fuels about 33 per cent of the United States electricity generation mix, compared to about 30 per cent for coal and 20 per cent for nuclear. Ten countries, Algeria, Azerbaijan, Belarus, Brunei, Moldova, Oman, Singapore, Trinidad and Tobago, Tunisia and the United Arab Emirates, generate 91-99.6 per cent of their electricity from natural gas. Nigeria generates more than 80 per cent from natural gas. Natural gas provides an efficient, competitively priced fuel for the generation of electricity. The combustion of natural gas emits almost 30 per cent less carbon dioxide than oil, and just under 45 per cent less carbon dioxide than coal. Natural gas demand is greatest in the winter months when residential and commercial demand for space heating increases. Natural gas consumption in the power sector is greatest in summer months when overall electricity demand is relatively high because of air conditioning. The market demand for natural gas is determining where investors would go. The United States Energy Information Administration, EIA forecasts that the United States will end the 2019-2020 winter season with 1,935 billion cubic feet (Bcf) of natural gas in storage, or 12 per cent higher than the five-year average.

The EIA attributes the inventory build to a mild winter season and strong production. The agency says that the upcoming injection season of April through October, gas inventories could rise to 4,029 Bcf, which will be a record high. In the next few decades, the demand for energy would continue to rise to meet the growing global population. The rise of LNG goes hand in hand with natural gas’ role as an increasingly critical component of the global energy market.  According to Shell’s 2019 LNG outlook, LNG will meet 40 per cent of expected energy growth by 2035. The global demand forecast for natural gas in 2024 would be more than 4.3 trillion cubic metres, with China accounting for more than 40 per cent, propelled by the government’s goal of improving air quality by shifting away from coal. Many countries including the legacy producers: Qatar, Malaysia, Russia and Nigeria are increasing their investments in natural gas. The race for LNG export capacity is heating up with Australia soon to overtake Qatar as a world leader. Australia’s LNG exports are now US$32 billion annually. Qatar’s plan in the North Field Expansion project is to increase its capacity by 43 per cent by 2024. The United States is ramping up its LNG export capacity through shale gas to be the world leader. Italian oil and gas firm Eni has signed a long-term deal with Nigeria LNG (NLNG) to purchase 1.5 million tonnes of LNG. The deal, together with the 1.1Mt of LNG executed last December, allows Eni to increase its global LNG portfolio starting from 2021 in destination markets worldwide.

Nevertheless, the strong issue is the unhealthy rivalry between and among world producers who jostle to increase liquefaction capacities. This trend is making it difficult to secure established and creditworthy buyers in the international market. Countries are investing in liquefaction facilities even with capped LNG prices that are not certain to improve. The Henry Hub spot price for natural gas last week was US$1.85 per million British thermal units, MMBtu a marginal increase of 1.36 per cent. Rystad Energy analysts believe that a sustainable Henry Hub gas-price environment of at least US$2.5 per MMBtu may restore growth in the medium term. Chinese natural gas consumption grew 18 per cent in 2018 but it is slowing to an average annual rate of 8 per cent to 2024 because of slower economic growth. The coronavirus is also contributing to the collapse of prices with force majeure declarations that is fueling the global glut for LNG.

To the General Electric, powering the future with gas power means that tough challenges need smart solutions. Vice President of Product Management at ION Commodities, David Gross believes that the past 10 years have been the decade of natural gas, but the next 10 years will belong to LNG as countries race to build out their export capacity. On the global scale, fierce competition and oversupply will continue to be the reality in the short term, but the potential for growing demand and higher prices is just a few years away as demand continues to grow in both Asia and Europe.

Vanguard

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