Global Gas Markets May Face Big Challenges

- May 03, 2020-

While all eyes are on the collapse of the crude oil market, the global gas market is also facing huge challenges.

Buyers in Asia and Europe canceled at least 20 shipments of U.S. liquefied natural gas (LNG), Reuters reported.

Global demand for natural gas is dwindling, with Cheniere Energy, a major U.S. exporter of liquefied natural gas, estimating that 10 shipments have been canceled.

The price of liquefied natural gas in Asia had fallen sharply before the public health event, thanks to a big increase in supplies last year.

More recently, Asian LNG for delivery in June was $2 per million btu, just above the price of Henry Hub in the us.

As recently as last October, Asian LNG prices were about $7 per mmbtu.

The problem for U.S. natural gas exporters is that the break-even price for gas to Asia, after factoring in liquefaction and transportation costs, is about $5.56 per million bthermal, but prices are less than half that, according to Reuters.

Gas exports tend to be fixed under strict contracts, but trade in these goods is now likely to be cancelled.



"What are the prospects for LNG?

The market for what was once the world's hottest energy commodity appears to be collapsing.

It is worth noting that the price of LNG in the fall of 2018 is about $12 / mmbtu."

In recent years, oil majors have made big bets on liquefied natural gas.

In 2015, Royal Dutch Shell paid more than $50bn for BG Group as it watched demand for gas soar.

More than four years ago, Ben van Beurden, shell's chief executive, said after the acquisition of BG Group: "we will build a leaner, more competitive company, leveraging our core expertise in deepwater and liquefied natural gas."

The deal makes shell one of the world's largest LNG traders.

At that time, several other oil majors, such as total, exxonmobil and chevron, also made large investments in LNG.

Liquefied natural gas is being hit, arguably, as hard as crude oil.

The past month has seen a series of high-profile investment delays or cancellations.

In early April, for example, exxonmobil delayed a final investment decision on a large LNG export project in mozambique.

Yet even before the current crisis, the industry was facing economic difficulties.

Clark Williams - driver, points out that these companies blamed the natural gas market crisis will be the outbreak of coronavirus, and ignore the price of liquefied natural gas (LNG) as early as before the outbreak of public health events has started to fall, shockingly, large and small companies are to cancel the business - both speculative start-ups, there are also listed state-owned giants and giant.

This will spill over into the upstream sector, where the us gas industry is also facing problems ahead of 2020 because of oversupply.

And exports may not be able to drive demand from gas drillers as much as they have in the past, with Henry Hub stuck at $1.80 per million btu.

Intriguingly, however, shares in gas drillers have rebounded in recent weeks.

Pittsburgh-based EQT, for example, has doubled in value since march.

But that has been helped by the federal reserve's injection of trillions of dollars into the financial sector, the re-inflation of financial assets and the "buy the dips" of investors.

Industry analysts predict that the huge gap in Permian gas production will push up prices next year.

Goldman sachs says gas prices will rise to $3.25 per mmbtu by 2021.

But for now, the economic outlook for LNG is pretty bleak.