Global gas prices rally unstable as buyers explore new options

Global gas prices, which had been rallying recently may hit a glass ceiling due to competition from other energy sources.

“In the power sector, there are many competitors for natural gas, renewables being one of them and coal on the other side,” Fatih Birol, executive director of Paris-based energy policy adviser the International Energy Agency, said in an interview earlier this month. “If the price of natural gas goes up, there may be a question for demand growth.”

For instance, in the United States of America, electricity from renewable sources, especially wind and solar, continued to increase in 2017. Wind made up 6.30 percent of total net generation, and utility-scale solar made up 1.30 percent, record shares for both fuels.

Although natural gas continued to be most-used fuel for electricity generation for the third consecutive year, natural gas-fired electricity generation fell by 105 billion kilowatthours in 2017, the largest annual decline on record. Coal-fired electricity generation also fell, but to a lesser extent, marking the first year since 2008 that both natural gas- and coal-fired electricity generation fell in the same year.

An expected liquefied natural gas boom, with record supply growth next year and as much as $200 billion earmarked for new projects in the next three years, may help pare prices outside North America. With the world transiting away from dirtier coal, strong demand seems pretty certain, but high prices are not, Tatiana Mitrova, director of the energy sector at the Moscow said.

Natural gas prices had surged to a ten-month-high on the back of low United States gas stockpiles, higher-than-usual power demand due to warm autumn and nuclear plant outages but Nigeria did was unable to contribute to narrow down this demand-supply gap because of its stalled gas development projects.

Natural gas prices had gone up about 12 percent over the last month to roughly $3.16 per million British thermal unit. On Wednesday of the week ending October 5, they hit a more-than-seven-month high, at $3.26per mmBtu.

London-based Barclays Bank expected a volatile winter for natural gas prices, with supply and demand balanced on a “knife’s edge.”

Consumers of gas are too clever, Mitrova said, citing Germany’s promotion of liquefied national gas (LNG) import projects in a bid to win lower prices from Gazprom, the world’s biggest gas producer. The Russian company may also face lower prices in Asia, Mitrova, who sits on the board of oil-services company Schlumberger Ltd said.

Competing to Build Germany’s First LNG Import Terminal Gazprom knows the drill. It already suffered thin margins for some hub-market sales in Europe in 2015 and 2016, she said.

“Gazprom was supplying gas at break-even prices,” Mitrova said in an interview at the Oil & Money conference in London.

“I’m afraid supplies to China might see the same development.” Markets are signaling lower prices as oil dropped, as this comparison of the forward curve for the Dutch Title Transfer Facility, Europe’s most liquid gas hub, over the past month shows.

With Russia, the Middle East, the U.S., Canada, Australia and Africa all competing to supply, prices will probably come under pressure, Nick Campbell, director of energy intensive clients at Inspired Energy said.

Then there are other key areas of demand, gas users beyond power generators. The manufacturing sector is a “main driver” for demand growth during the coming years, and renewables probably aren’t a viable alternative for many factories, the IEA’s Birol said.

STEPHEN ONYEKWELU