Natural Gas Prices Plunge

By Paul Homewood

Gas prices are in freefall, according to latest analysis from Timera:

TTF prices fell by more than 50% across Winter 2018-19. No… that is not an April Fool’s joke. The decline in European and Asian gas prices across the last six months has been steep and relentless.

The price decline gathered pace in Q1 2019 as shown in Chart 1. As the quarter progressed, Asian spot LNG prices converged with European hub prices. Then in late March, the key North Asian LNG price marker JKM crashed through the TTF price level.

If the Q1 2019 price decline were a ski slope it would be marked with double black diamonds.

Chart 1: Global gas price regional benchmarks (historic spot & current forwards)Source: Timera Energy

Price behaviour is consistent with an acute near term surplus of LNG into the start of summer. The growth in new LNG supply (e.g. from projects in Australia, Russia and the US) is at least temporarily outpacing demand growth.

The LNG market is clearing surplus cargoes via sending them to liquid north west European hubs. The discount of JKM to TTF reflects this dynamic, although liquidity in spot cargoes has been limited across recent weeks. At current prices it makes no sense to send US LNG to Asia.As a result of these dynamics, LNG delivery volumes into Europe surged in Mar-19 to their highest level in history.

This coincided with a second European gas market record. Russian import volumes in Mar -19 were also the highest in history. Gazprom has shown no inclination to ease back on supply as prices have fallen.

As well as very strong import volumes, European gas demand has been relatively weak. Q1-19 has been unseasonably warm. Coal prices have also been falling, reducing the gas price switching levels at which incremental power sector gas demand kicks in. And European industrial and manufacturing data across Q1-19 has been very weak (particularly in Germany & France).

Full story here.

The most recent government set of fossil fuel prices, published last December, show the central scenario gas price at 57p/therm, well below the current 12-month forward price of 44p, according to Catalyst Energy.