Natural-Gas: Prices in Europe and Asia Plummet to Historic Lows

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♦ Natural Gas – Stock Market News ♦ … — Natural-gas prices in Europe and Asia have plummeted this year to historic lows in the midst of reduced demand, the trade dispute with China and brimming storage facilities in Europe. The biggest driver of falling prices, though, has been the U.S. Natural Gas that is spilling into global markets.

“It was inevitable,” said Ira Joseph, head of global gas and power analytics at S&P Global Platts. “There is simply too much supply coming into the market at one time.”



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The price decline has eliminated some of the allure involved in liquefying cheap U.S. gas and shipping it abroad, where it typically fetches much higher prices.

That is a concern for the exploration-and-production companies that have flooded the market with cheap shale gas and are already struggling with flagging shares and restive shareholders.


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The more international prices fall, the better the chance that the waterfront facilities that produce liquefied natural gas, or LNG, for overseas shipment will reduce their intake of gas, which has helped keep domestic gas prices from collapsing completely this year.

U.S. natural-gas futures for September delivery settled Tuesday at $2.202 per million British thermal units. That is down about 25% from this time last year despite the surge in exports and record consumption among U.S. power plants this summer to generate electricity in response to sweltering heat.


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The benchmark price for natural gas in Asia, the Japan Korea Marker, has fallen to as low as $4.11 per MMBtu this summer, down from more than $11 per MMBtu a year ago, according to S&P Global Platts. Meanwhile, a widely used European price set in the Netherlands has dropped to nearly $3, from about $9 a year ago.

Those prices don’t leave much margin for U.S. sellers. Though processing and shipping costs can vary by exporter and destination, $2 per million BTUs is typical, analysts say. Houston’s Tudor, Pickering, Holt & Co. estimates that about 25% of the global LNG market is subject to spot prices, as opposed to pricing that is sketched out in long-term supply contracts.

The squeeze comes in the midst of the biggest expansion yet of LNG shipping capacity.

Earlier this month Freeport LNG Development LP’s export terminal in a beach town south of Houston began buying and liquefying gas with the expectation of sending out its maiden cargo in September. The Freeport facility, the fifth to begin operating in the lower 48 states since the first opened in early 2016, should help push gas consumption from LNG exporters to a new high. Last week, a record nine LNG vessels left the U.S. carrying cargoes, according to Jefferies Financial Group Inc.

In July, LNG exporters consumed an average of about 6 billion cubic feet of gas per day, according to the U.S. Energy Information Administration. That is the most yet and is equal to roughly 7% of total U.S. gas production. Analysts expect demand from LNG facilities to absorb about 12% of total production by next summer as additional facilities start up and existing terminals boost their capacity.


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But if those projects are delayed because of low prices overseas or if existing LNG plants slow down or take advantage of the lull to perform extended maintenance, then the domestic gas market could be swamped, sending prices even lower.

“If that demand goes away even for a couple months, it becomes a real problem for the balance of the market,” said Welles Fitzpatrick, an analyst with SunTrust Robinson Humphrey.

The reliance of U.S. producers on demand around the world is a stark change from just a few years ago, when domestic gas prices were isolated from global markets and depended mostly on weather-related demand.

These days, though, U.S. gas prices take into account a range of overseas factors, such as Japan’s nuclear-reactor output, trade negotiations with Beijing and Dutch stockpiles.

The EIA, for instance, has estimated that Japan’s imports of LNG will decline by as much as 10% this year as nuclear reactors that were shut down after 2011’s Fukushima accident return to service.

At the same time, shipments to China essentially ended after the country placed a 10% tariff on U.S. LNG last September and boosted the levy to 25% in June in its tit-for-tat trade dispute with President Trump. Meanwhile, EIA data shows an increase in shipments to European countries, including the Netherlands and Spain, where gas is stored for later use.


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Many of those facilities are reaching capacity, however, and some analysts have expressed concern that buyers in those European markets may become sated until inventories are drawn down to heat homes this winter.




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