Asia Presents Bright Prospects for Liquefied Natural Gas

SEATTLE (Oil Monster): Oil markets have enjoyed a period of continuous rise, thanks to a combination of positive factors including compliance to some extent with agreed production cuts, partial recovery in oil demand as well as a month-long extension of production cuts with Opec+.

Brent prices touched a barrier of $44 a barrel, the level it touched several months ago with WTI, which is also looking to break through the psychological level if Opec+ stops extending cuts after July.

However, the same cannot be said about the market position for natural gas.

Natural gas prices are still courting with their lowest levels in a while due to the accumulation of supplies because of 'flooding of rock fields and weak demand due to the unfavourable weather for consumption.

Europe seems to be soaked in natural gas amid weak demand and limited storage capacity with the result that gas suppliers may have to reduce or cut flows to prevent natural gas prices from slipping further for several months until demand returns.

The demand for natural gas remains weak as major economies in Europe exit from closings and this could take several months while gas in storage across the continent reaches a record level at this time of year.

The natural gas glut led to lower prices in major European centers such as the Dutch TTF as well as the contract trading price on the UK National Budget Point (NBP).

Prices did not move much even after the Russian gas company Gazprom, the largest gas exporter to the European continent, saw its flows on a major pipeline to zero last month, as it stopped the flow of natural gas from Russia to Europe through the Yamal-Europe pipeline that crosses Poland completely in last week. This is after the expiry of a two-and-a-half-year deal between Russia and Poland, and after the spread of the Covid-19 epidemic and the lack of demand for gas in the European continent.

In reality, the new organisation for gas and Opec should not be compared, as the member states of the Gas Organisation will not have any coordination or agreement between them on the quantities of production (in each of them) and the production, transportation and marketing operations in gas cannot be compared to their counterparts in oil, just as the process of monopolising the gas supply is not possible.

This is because most contracts (for selling gas) are long-term and extend over a period of several years, just as gas prices are not like oil related to stock prices, and can be agreed upon for a period of at least six months or a year and also selling large quantities of oil in the spot market.

However, there are indications that countries are beginning to cut supplies independently of Norway, another gas exporter, which cut their flows by 11% during the first quarter.

Meanwhile, US LNG exports decreased to 5.6bn cubic feet per day in the last week of May, after averaging 6.7bn cubic feet per day.

Natural gas producers seem to have avoided the oil price war that sank the oil market — but they also helped restore the market.

However, they need to do more than they currently do to maintain price balance and raise prices to their normal level in terms of stimulating the methodology of the gas marketing and selling mechanism.

As for the American liquefied natural gas (LNG), American exports are currently not profitable because the prices of natural gas in Europe are lower than the prices of the American Henry Hub standard, while most of the LNG exports from Qatar are linked in long-term contracts and there is some profit margin for these contracts higher than selling on the spot market.

Usually, the revenue from selling LNG in the Asian continent is higher than the European continent due to less shipping costs and price reference associated with oil prices.

Courtesy: www.menafn.com