Advertisement

The natural-gas glut is here to stay

Surging US exports of liquefied natural gas have driven the price down to below $3 per mBtu

Liquefied natural gas (LNG) is “in the doldrums”, says Caroline Bain for Capital Economics. Prices have fallen below $3 per million British thermal units (mBtu), even though it is still winter in the northern hemisphere.

A year ago LNG was trading at $6.8 per mBtu. The main culprit is “surging US exports” as well as new supply coming online from Australia and Russia. The coronavirus, which has knocked out much Chinese demand, delivered the final blow.

Advertisement - Article continues below

“No major commodity in the US had a worse 2019 than natural gas,” says Nilanjan Choudhury on Yahoo Finance. Prices fell 25% last year, the worst annual decline since 2014. That has weighed on oil majors, which have made big gas investments in response to the “secular shift to the cleaner burning fuel for power generation”. 

The US uses 50% more natural gas than it did a decade ago, part of a global trend as governments phase out coal, notes Avi Salzman for Barron’s. Yet even that formidable demand growth has not been enough to keep up with surging supply. America’s fracking boom saw production increase by “about five billion cubic feet per day” “between December 2018 and December 2019”. Add in an unusually mild US winter and it is easy to see why local prices fell to a four-year low at the start of February. The gas glut means that most analysts think that prices are unlikely to recover “until next winter at the earliest”. 

Advertisement
Advertisement

Recommended

Solid income from a renewable energy "tortoise" fund
Investment trusts

Solid income from a renewable energy "tortoise" fund

GCP Infrastructure plods along compared with its rivals, but offers an attractive yield at the current price
4 May 2020
Royal Dutch Shell slashes its dividend: what now for income investors?
Stockmarkets

Royal Dutch Shell slashes its dividend: what now for income investors?

Shell's dividend cut – its first since WWII – has come as a nasty surprise. And it leaves income investors wondering where to turn now. John Stepek lo…
1 May 2020
The uranium price is finally on the rise – here’s the easiest way to bet on a bull market
Commodities

The uranium price is finally on the rise – here’s the easiest way to bet on a bull market

The uranium price has been quietly creeping up to hit a four-year high. Dominic Frisby explains what’s behind the rise, and picks the best way to inve…
15 Apr 2020
Oil shoots higher – have we seen the bottom for the big oil companies?
Oil

Oil shoots higher – have we seen the bottom for the big oil companies?

Just a few days ago everyone was worried about negative oil prices. Now, the market has turned upwards. John Stepek explains what’s behind the rise an…
3 Apr 2020

Most Popular

An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020
Three ideas for Lloyds Bank's new boss
UK stockmarkets

Three ideas for Lloyds Bank's new boss

The Black Horse needs whipping into shape. A change at the top provides a great opportunity, says Matthew Lynn.
12 Jul 2020
Why the moving average is my favourite charting tool
Sponsored

Why the moving average is my favourite charting tool

Traders and technical analysts use "moving averages" to iron out daily fluctuations and give a much clearer picture of a market's direction. Dominic …
13 Jul 2020