As oil prices touch year highs on OPEC’s production cuts, US gas prices are in the midst of a rally of their own. Last June we predicted a squeeze on US gas prices this winter with ramifications for global gas markets. With winter upon us, is gas moving too?
US LNG exports are due to ramp up to 11 mt in 2017 from 4 mt in 2016, at a time when new LNG supply from Australia and Malaysia is also hitting the market. Liquid NW European hubs may have to absorb more than twice as much LNG volume in 2017 as 2016. This rapid increase in LNG supply is likely to put downward pressure on emerging spot LNG indexes, and lead buyers to favour spot over contracted LNG. Trading so far on Asian LNG exchanges in Japan and Singapore has been very thin. But supply competition will improve liquidity. A disconnect between oil and spot could help LNG along the way to becoming an exchange-traded commodity. With little room in Asia, US LNG will be competing on price in Europe with cheaper Russian pipeline gas, both vying to displace coal from the power market. Gastech 2017 offers a great place to discuss what the future global gas market looks like and how companies should position for it.