The current situation in the US natural gas market is the major reason for lower NG prices around the world. Last year the prices went 32% down amid higher production in the USA. As a result, the US stopped exporting NG form the Middle East while Qatar had to change its logistics of transporting liquefied natural gas, transporting it to Europe. What are the near-term prospects of the global NG market? What factors should traders and investors pay attention to?
NG market: why do the prices keep declining?
The NG futures market showed a stable decline during the period of March 1st - 9th 2012 from $95,35 per 1MMBtu down to $83,7 per 1MMBtu (1MMBtu = 28,263682 m3). Over the next 2 week the price fluctuated within the 83,7-87,1 range mainly due to the heavy pressure on Iran. China also contributed to the situation by reporting a delay in the construction of the pipelines leading to Central Asia. Later on, the downtrend resumed after the BRICS states announced a possible increase in their natural gas supplies.
In early April NG prices fluctuated in the 73,7-77,5 range mainly due to the talks between China and Turkey over the construction of a gas pipeline.
According to , the prices are being pressed by record-high NG reserves. The mid-term forecast is bearish.
As of March 23rd, the US NG stocks were equal to 2,437 Bcf (+57 Mcf as compared to the previous week and +816Mcf y/y).
In the Western region the NG stocks are 403 Mcf higher the 5-year average. As of March 23rd, the stocks were estimated at 1,074 Bcf (+25 Mcf as compared to the previous week).
The consumption of NG increased by 10% due to lower temperatures. The housing and commercial sectors showed the biggest increase - 10.4%. The industrial consumption increased by 1.3%.
What are the reasons for the price decline?
Let’s start with the fact Russia was the major NG price maker over the long period of time, which started in the late 1990s and lasted till 2009. Over the mentioned period, Russia produced 22-26% of the global production of NG. The situation changed when the USA started extracting shale gas through horizontal drilling. In 2009 the USA outpaced Russia in terms of NG production by as much as 43 Bcf. In 2010 Russia regained the leadership. But the US has been the major price maker since then.
NG futures were mainly pressed by the following factors:
· Excessive reserves of NG in the US storage due to mild winter (48% remained unused).
· Russia’s wise export policies
· Overall economic slowdown
However, the following factors prevented a collapse in the market of natural gas:
· Europe’s green policies. In particular, Germany decided to completely abandon nuclear energy by 2022. Switzerland froze the construction of its own nuclear power plant.
· China announced its decision to increase the import of NG from Middle Asia by 500%. New pipelines are being built in order to implement the idea.
The bottom line: Therefore, we can anticipate a further bearish trend in the market of natural gas. Seasonality is expected to increase the pressure on NG prices. The next significant price growth will take place in October-November.
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