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What to do with the fall in gas prices?

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Today's newsletter analyzes the fall in gas prices on both sides of the Atlantic. An unusually warm winter has helped fill gas inventories faster than expected, dragging down prices in the United States and Europe.

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Global gas prices fall due to weak demand and full stocks

Two years after Russia's full-scale invasion of Ukraine disrupted energy markets, gas prices have fallen to multi-year lows as the world faces a supply glut.

The European benchmark, the Dutch TTF, closed below $7.30/mmbtu last week, levels last seen before the energy crisis and a drop of more than 90 percent from record highs seen in the first months of the war, according to the energy consultancy ICIS. Prices in Asia have also fallen sharply.

While the US market is isolated from the rest of the world, Henry Hub benchmark contracts for March also fell to a near three-decade low earlier this month, excluding a handful of days of the Covid-19 pandemic.

$/MMBtu line chart showing worldwide gas prices falling

Falling gas prices around the world share some common denominators and point to larger questions about Europe's industrial recovery and the role of gas as a transition fuel.

“We are coming out of a period of a substantially tighter market, something we haven't seen before at any time in global gas,” said Samuel Good, head of energy pricing at Argus Media. “The balance between supply and demand is much weaker than it has been in almost two years, and we would expect that easier balance to continue.”

The Northern Hemisphere is experiencing one of the warmest winters on record due to climate change and El Niño weather patterns. This has reduced demand for gas in the United States and Europe, filling inventories weeks before the spring, when gas is normally injected into warehouses, and lowering prices for Asian traders to compete for shipments. Meanwhile, in the United States, gas production has reached new levels, depressing prices and tipping the market toward oversupply.

“We have too much gasoline. There is not enough storage, so prices have to get to a point where they reduce supply,” said Ademiju Allen, senior analyst at Rystad Energy.

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Market conditions have pushed US gas producers Chesapeake Energy and Coterra Energy to cut their 2024 production forecasts. Analysts expect further withdrawal by producers and US gas prices to rise later this year and early 2025 as liquefied natural gas export capacity increases. comes online (President Joe Biden's pause on LNG permits won't have much short-term impact on the market).

What differentiates this commodity cycle from previous ones is what will happen in Europe. The continent has at least one more winter before new LNG supplies replace lost Russian imports and emerge from the energy crisis. But this period of lower prices could serve as a test of whether Europe's industrial sector has any chance of recovery. S&P Global Commodity Insights estimates that approximately 6 to 10 percent of industrial gas consumption in Europe has disappeared forever due to demand destruction.

“It will take some time.” . . before we can really start to believe that energy is affordable,” said Tom Marzec-Manser, head of gas analysis at ICIS.

Column chart of EU and UK industrial gas consumption recovery (bcm) showing that European industrial gas demand is expected to recover.

Samantha Dart, head of natural gas research at Goldman Sachs, says the price situation in Europe is a “preview” of what to expect later in the decade, when a surge in LNG exports will oversupply the market. , pushing prices down further and helping to reduce the risks of industrial relocation. The company expects 204 mmtpa of new LNG supply by 2028, double the amount of Russian supplies restricted by Europe.

Lower gas prices have implications for the energy transition, potentially keeping consumers hooked on the fuel for longer. It could also boost gas's image as a transition fuel from coal to renewables, especially in Asia, the biggest source of new gas demand growth. Qatar made big bets on the market this week, announcing it will increase LNG production capacity by almost 85 percent before the end of the decade.

“When we make long-term investment decisions for the energy transition, we shouldn't base them on current spot prices, but we inevitably do,” said Michael Stoppard of S&P Global Commodity Insights. “Of course, there was a big swing against natural gas, when the price was very high and it was considered unreliable. Now there is a feeling that natural gas is back. . . and will make competitive support for renewables more difficult.”

Asian gas demand (bcm) column chart showing that Asian gas demand is expected to grow throughout the decade.

Work movements

  • Carlyle he has hired Jeff Currieformer global head of commodities research Goldman Sachs who predicted a boom in oil prices in the mid-2000s, to help the American private equity group invest in energy market trends.

  • South Pole has designated Daniel Klier as CEO of the climate consultancy, succeeding interim director John Davis. Klier currently directs ESG booka sustainability data platform.

  • Ørsted has chosen Trond Westlie as its new CFO and Patrick Harnett as operational director. Westlie has served as CFO at numerous companies, including AP Møller-Maersk, and Harnett currently serves as head of Ørsted's European delivery programs. Appointments come later Daniel Lerup and Richard Hunter he resigned as chief financial officer and chief operating officer, respectively, last year.

  • American electric power Announced Benjamin Fowke will serve as interim chief following the dismissal of Julie Sloat, whose mandate lasted less than 14 months. Fowke previously served as CEO of Xcel Energy.

  • Sunnova fixed Pablo Mateo as executive vice president and chief operating officer of the residential solar company. Mathews joined Sunnova last year as executive vice president of service and supply chain.

Power suppliers

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the Financial Times' global team of reporters. Contact us at energy.source@ft.com and follow us on @FTEnergy. Catch up on previous editions of the newsletter here.

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