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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Gas Traders Looking for a 2024 Rally Will Be Disappointed

  • Booming production coupled with mild weather has completely reversed the natural gas price trajectory, with natural gas prices falling to below €30 per megawatt-hour, the lowest level since August 4th.
  • WoodMackenzie: high storage levels in Europe coupled with a mild Northern Hemisphere winter will keep global gas prices subdued in the current year.
  • Wood Mac anticipates a more positive outlook on Asian demand outlook, with demand expected to grow by 12.5 million tonnes, 5% higher compared to 2023
Gas

Last year proved to be an annus mirabilis for the natural gas and LNG sectors after gas prices in key markets crashed spectacularly after hitting record highs. Europe’s key front-month Dutch Title Transfer Facility (TTF) hit an all-time high of €340 per megawatt-hour in August 2022 as Europe went into a gas buying spree as it tried to fill its gas stores ahead of winter after weaning itself off Russian gas. In the United States, Henry Hub gas prices hit a 15-year high of $9.24 per MMBtu around the same time European gas peaked

Unfortunately, booming production coupled with mild weather has completely reversed the natural gas price trajectory, with natural gas prices falling to below €30 per megawatt-hour, the lowest level since August 4th, while Henry Hub gas has now sunk to $2.74/MMBtu.

And, gas traders who were hoping for anything that remotely resembles the 2022 epic rally are in for another disappointment, with Wall Street predicting that 2024 will be yet another down year for gas prices. In its report dubbed ‘Global Gas and LNG: 5 things to look out for in 2024’, Wood Mackenzie has forecast that high storage levels in Europe coupled with a mild Northern Hemisphere winter will keep global gas prices subdued in the current year.

[Wood Mackenzie] has been forecasting lower 2024 prices for much of last year, especially compared to forward curves, amid weak market fundamental expectations. Global LNG supply growth will remain limited at 14 million, but with Asian LNG demand still weak, competition for LNG is unlikely to heat up,” Massimo Di Odoardo, Vice President of Gas Research at Wood Mackenzie, has said.

Source: Trading Economics

European gas demand came in 7% lower in 2023 compared to the previous year, thanks in large part to mild weather. Under ordinary circumstances, normal weather dynamics as well as a possible economic rebound in the continent would support demand; however, with renewable supply expected to surge to more than 100 TWh and nuclear production gradually increasing, demand is expected to remain flat at best. Related: Climate Groups Defeat Norwegian Government In Court Battle

Wood Mac anticipates a more positive outlook on Asian demand outlook, with demand expected to grow by 12.5 million tonnes, 5% higher compared to 2023. Still,  2024 demand will come in nearly 3 million tonnes lower than levels in 2021.

Further, the report has forecast that the global LNG shipping market is at serious risk of oversupply, with 60 LNG carriers set to be commissioned in 2024.

Altogether, the 60 new vessels equate to 10.4 million m3 of LNG shipping capacity, sufficient to move 54 million typ of LNG between the US Gulf Coast and Eu-rope. There will be limited organic LNG supply growth and the bulk of US LNG it’s still expected to be routed to Europe, rather than Asia, limiting demand for shipping and putting pressure on freight rates,”  Di Odoardo has said. 

Wood Mac’s predictions appear to be already taking shape. European gas prices have dropped 13.6% in the year-to-date despite a cold snap coupled with a relative lack of wind-power generation having triggered a spike in EU gas withdrawals over the past week. Europe’s gas inventories decreased by 1.32 bcm on 15th January 2024 to 92.31 billion cubic meters (bcm) on 14 January, with the withdrawal rate 14.76 bcm above the five-year average. Unfortunately, Europe’s gas inventories remain higher-than-average, and the latest big inventory draw has failed to give prices any kind of momentum. However, the situation is more bullish in the United States with falling supply and extreme cold weather helping  Henry hub gas prices climb 12.1% year-to-date, though prices are 20.0% lower than year-ago.

Offshore Oil Is Booming

Thankfully, not all corners of the energy sector are expected to remain lackluster. The ongoing offshore oil boom is expected to continue for years to come. Global offshore oil and gas markets posted robust growth in 2023, with the proprietary Clarksons Offshore Index that tracks offshore support vessels (OSV), rig counts and subsea day rates climbing 27% to a multi-year high of 106 points. Even better for the bulls, the index is projected to reach all-time high in 2024. OSV, rig and Subsea markets have been particularly robust, particularly in the Middle East, Brazil and West Africa.

Last year, offshore crude production clocked in at  25.5 MMbpd (27% of global oil output), up 3.0% y-o-y, while offshore gas production came in at 129 Bcfgd (32% of global gas supply), up 1.9% y-o-y.

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Investment interest in the global offshore oil and gas sector is in the pink of health, with Clarksons predicting that global offshore oil and gas CAPEX will set another record at $125 billion in the current year, up from the previous record of $116 billion in 2023.

By Alex Kimani for Oilprice.com

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  • George Doolittle on January 19 2024 said:
    Alaska opened up for oil drilling so so much for that one. Alaska could become a massive natural gas player as well if need be...more than able to supply North America West Coast to include presumably Panama where all of this LNG will somehow transit although how that could work given this number of ships I have no idea. Pipelines still remain by far the best way to ship energy product as Putin Russia keeps finding out the hard way. Presumably natural gas powered ships will keep being a big thing though further displacing diesel fuel which is very bullish for both natural gas and legacy diesel systems which continue to be further commoditized in the US market anyways. Diesel fuel is still incredibly expensive as well leading to the continued boom in battery electric vehicles to include even prime movers now (Railroad Locomotives.) At one time in US History Class 8 Railroads ran on turbine power actually. A return to that would be a big demand driver for natural gas a fuel. No evidence of that being considered but wouldn't be anything new if it did. Either way US domestic market still primed for a continued export boom despite massive consumption of natural gas from overwhelmingly domestic sources. Windpower going forward in the USA a big deal as well (onshore) to provide the necessary base load for an LNG boom to even exist. Long $ibm International Business Machines strong buy. Don't know what to make of the massive rally in nVidia. Presumably vehicle autonomy is starting to spread to aircraft and shipping now and I have seen evidence for that. Oddly enough far more less effort to create "vehicle autonomy" for a Railroad.

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