On May 21, 2018, a liquefied natural gas tanker arrived in Yokohama, Japan and passed the container terminal.
Tomohiro Ohsumi | Bloomberg | Getty Images
Natural gas prices have plummeted as the world grapples with a supply glut after a warmer-than-expected winter.
The recent heyday of LNG has boosted prices and profits, spurring a wave of investment in the industry. Morgan Stanley said in a recent report that more than 150 million tons per year of LNG capacity is currently under construction, marking a “record wave of expansion.” For a market that currently produces more than 400 tons per year, this represents “a significant increase in supply.”
“We expect natural gas market oversupply to reach multi-decade highs in the coming years,” said Morgan Stanley commodities strategists.
Natural gas prices currently stand at $1.83 per MMBtu (metric million British thermal units), down about 22% year to date.
A warmer-than-usual winter has dampened heating demand in major LNG consumers, and in turn natural gas demand.
Natural gas prices year to date
What does it mean for different countries?
“European countries will definitely benefit the most from these low prices,” Chong said.
After Russia cut production, Europe’s LNG imports expanded to 35% of total natural gas supplies, most of which are purchased at spot prices. Therefore, lower prices help keep fuel imports affordable.
Morgan Stanley said other key beneficiaries include India and Southeast Asia. India and Thailand benefit the most from lower LNG prices, as imported gas accounts for 30% to 50% of their energy supplies. Natural gas demand in India is the most elastic, meaning as prices fall, consumers buy more. Thailand has one of the largest per capita natural gas consumers among emerging market economies.
Lu Ming Pang, senior analyst at Rystad Energy, said that while the world’s ample LNG storage capacity highlights negative price fundamentals, demand is likely to pick up as second-tier and emerging market countries such as China are attracted back to the market by low prices.
“All these factors seem to point to a price floor,” Zhuang said.
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