By Irina Slav
Earlier this month analysts sounded the alarm for European natural gas prices when it turned out that a lot of Asian buyers are turning down LNG cargoes and Europe is taking these in, filling up its storage space. Now, everyone seems to be wondering when prices will bottom out, if they will bottom out at all.
Gas is in a bear market at the moment. In Europe, the benchmark has lost 27 percent since the start of the year after losing close to 50 percent last year, Bloomberg’s Vanessa Dezem and Will Mathis wrote earlier this week. Reporting from the E-World event in Germany, they also quoted traders and analysts as saying they wouldn’t venture a guess at how low price could fall further. This could be a worrying sign.
Natural gas production has been rising globally. It’s not just the United States, although the U.S. is leading the charge with its cheap fracked gas, but it’s also Australia, Israel, Russia, and Norway, among others. There is more gas on offer now but demand is stuttering. The coronavirus is the immediate culprit: it hit China’s energy demand and whatever hits China’s energy demand also hits global demand.
Related to the coronavirus but a separate concern is the slowdown in the global economy. Initially attributed to the U.S.-China trade war, now expectations of a slower economic growth on a global scale have persisted despite the Phase 1 deal Washington and Beijing signed late last year. Quarantines are ending and people in China are going back to work so the effect of the coronavirus on GDP will eventually die out but optimism is hard to come by.
Yet economic sentiment is not too great in Europe either and it has been that way for a while now. The eurozone economy, which groups some of Europe’s biggest gas consumers, notably Germany, has been stumbling along for years now and nothing seems to help it grow more strongly. Germany itself registered a technical recession last year and for the final three months of that year it booked zero economic growth. That’s not conducive to a bullish sentiment about any energy commodity, let alone excessive-supply gas.
And that’s not all. Gizmodo recently berated the continent for committing $130 billion in investments in new gas import infrastructure that will increase its intake of the commodity by about 30 percent. That’s bad for Europe’s emission targets and the people in Brussels seem to be aware if it.
Earlier this month, Euractiv reported that the European Commission was preparing a strategy aimed at curbing methane emissions generated by the oil and gas industry including the methane generated during the production of natural gas in the United States that is then liquefied and shipped to Europe.
“Work has started on the methane emissions linked to the energy sector, including oil and gas production and transport, but also coal mines and we are planning on presenting the strategic plan still this year,” one EU official involved in the drafting of the strategy told the news portal.
It is probably too early to start worrying about this strategy’s effect on gas demand on the continent that has the ambition to become the first zero-emission one in the world by 2050. Yet with an environmentalist lobby as strong as Europe’s it might not be too early.
Europe is currently between the rock of growing energy demand and the hard place of emission-related commitments. And while spread between these, it is being drowned in gas that is getting increasingly cheaper. How cheap could it get? Possibly cheap enough to make Norway turn the taps off: an Equinor executive had this message for those worried about Europe’s gas problem:
“If someone is hoping for supply relief from Norway, we will have to disappoint them,” senior VP Tor Martin Anfinnsen told Bloomberg. “We will be the last ones to turn off the taps. We are far away from reducing flows.”
By Irina Slav for Oilprice.com