Natural Gas Scenario: LNG Producers Supplying Flexible Deals From Global Supply Pools

Natural Gas Scenario: LNG producers Supplying Flexible Deals From Global Supply Pools

Natural gas prices are plunging in the global market amid an oversupply in the market. The prices of NYMEX Natural Gas Futures dropped significantly since November 2018.

The prices fell from the level of $4.929 (Day’s high on 14th November 2019) to the level of $2.447 (Day’s low on 23rd April 2019).

The continuous dip in the natural gas prices has been mainly due to the unbalanced demand and supply dynamics. The global market supplied with an abundance of natural gas noticed a decline in the demand amid warmer than expected weather during the winter season in the United States and various other such factors.

The significant loss in value in the prices of natural gas, led the world’s biggest liquified natural gas (LNG) producers such as Shell, Petronas, etc., to sell the stocks from the global supply pools instead of individual projects, that are committed for supplying on demand. The move by the LNG producers was mainly due to the fact that the buyers in the market are leveraging from a higher supply of natural gas in the global market to get flexible deals.

The global oversupply pulled the prices of the natural gas down by almost 50% or more in the tenure of six months, which in turn, prompted the producers to fulfil the consumer demands for fuel without sourcing restrictions.

As per an annual report published in April 2019 by the Paris-based International Group of LNG Importers, Royal Dutch Shell entered a contract with Hong Kong’s CLP Power, along with various other groups for delivering the LNG. As per the report, the holder of the world’s most significant LNG supply portfolio, Royal Dutch, could source the contracted LNG from any of its global projects.

However, in the recent scenario, the high crude oil prices in the global market and vagueness over the future of oil is causing the investors and traders to diversify their portfolio and include various other alternative energy resources in their respective portfolios such as natural gas.

It is to be seen if such diversions by the investors and traders could boost the sentiments of LNG producers once again in the global market and possibly allow them to expand their specific projects once again. These producers enjoyed the leverage in the early and mid-2018 and supported their individual projects.

The Australian explorer Woodside Petroleum (ASX: WPL) is among once such explorer, who took advantage of the changing LNG scenario in the global market; the company recently entered into a Heads of Agreement (HOA) with China’s ENN Group to support its Scarborough project.

In a nutshell, the fall in global prices of natural gas and its derivative products such as LNG coupled with oversupply in the market led the producers to hold the expansion of their projects and support the global pool of supply in the market. However, in the recent scenario, energy investors and traders are looking for alternative energy sources, which may boost the prices of the natural gas and associated products.


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