Anticipate Even Lower Natural Gas Prices in 2020

The global demand for natural gas is getting severely affected by the COVID-19 pandemic. Rystad Energy forecasts that the natural gas demand would not fall to the same extent as the demand for oil. However, the international gas prices would reach lower averages than previously expected in 2020.

These lower estimates are based on weaker demand that has been observed globally throughout the year, which is due to low commercial and industrial activity. The forecasts for prices in Europe (TTF) are now estimated at $3.2 per MMBtu, which is lower by $0.62 per MMBtu compared to the predictions in February. The estimates for Asian Spot prices have been revised to $3.80 per MMBtu.

The expected drop in prices in 2021 and 2022 has been revised based on lower economic growth and abundant LNG supplies. The oil-indexed price is also expected to hit bottom in 2021 at a level of $5.68 per MMBtu, which is (-16%) $1.05 per MMBtu below the previous forecast. The US Henry Hub gas prices remaining below $2.5 per MMBtu for a protracted period and are set at $2.43 per MMBtu next year.

Experts expect the global market fundamentals to remain loose through 2022 before tightening significantly as LNG demand growth outpaces liquefaction capacity, due to more delays in project sanctioning. It is estimated that there would be a tight LNG balance and a price spike in 2024 and 2025. The demand losses in 2020 are owing to a limited appetite for LNG, with buyers scaling down orders. Exporters have had to resort to adjusting their LNG production as a result of lower demand and low prices. The US is among those countries that would see the biggest impact on LNG exports.

Rystad Energy’s Head of Gas and Power Markets Carlos Torres-Diaz stated that, while LNG exports from the US had dropped, demand from the power sector continued to increase in March, boosted by low gas prices. He added that US gas demand from the power sector had reached close to 32 billion cubic feet per day (Bcfd). However, as the epicentre of COVID-19 moves from Europe to the US, there would be a drop in gas demand from power and other sectors.

It is also estimated that in a $30 WTI oil price scenario if oil prices do not improve, Permian dry gas production might decline by more than 400 MMcfd, even before year-end, and may fall by another 1 Bcfd over 2021 to 2022. The Permian Highway and Whistler pipelines may still go online and achieve adequate utilization rates. However, the utilization of some legacy pipelines, and the fate of future projects, is expected to be at serious risk.

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