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.

“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”. 

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