A liquefied See native gas tanker sails past a container terminal as it arrives in Yokohama, Japan, May 21, 2018.
Tomohiro Ohsumi | Bloomberg | Getty Models
Natural gas prices have plunged as the world grapples with an oversupply after a warmer-than-expected winter.
The recent heyday in liquefied appropriate gas boosted prices and profits, spurring a wave of investment in the sector. Over 150 million tonnes per annum merit of LNG capacity is currently under construction, marking a “record wave of expansion,” Morgan Stanley said in a recent note. For a exchange that currently stands at over 400 mtpa, this represents a “significant supply growth.”
“We expect gas call oversupply to reach multi-decade highs over the coming years,” Morgan Stanley’s commodity strategists said.
Non-chemical gas prices currently stand at $1.83 per MMBtu (metric million British thermal unit), down about 22% so far this year.
A warmer-than-normal winter has damped demand for heating and consequently gas in key LNG consuming countries.
Prices of regular gas year-to-date
What does it mean for different countries?
“Countries in Europe will definitely benefit the most from these low sacrifices,” said Chong.
Following Russia’s supply curtailment, Europe’s LNG imports expanded to 35% of its total gas supply mix, the majority of which is purchased on a spot price basis. Hence, the lower prices are helpful in keeping fuel imports affordable.
Other key beneficiaries encompass India and Southeast Asia, said Morgan Stanley. Lower LNG prices benefit India and Thailand the most as denoted gas constitutes 30% to 50% of their energy supplies. India’s gas demand is among the most elastic, meaning consumers order buy more as prices fall. Thailand is one of the top gas consumers per capital among emerging market economies.
While ample LNG storage function globally underscore bearish fundamentals for prices, Rystad Energy’s senior analyst Lu Ming Pang said necessitate could pick up as second-tier and emerging players like China are lured back into the market by low prices.
“All these middlemen seem to point to a price floor,” said Chong.