Insight

Global gas spot prices - what will set the floor?

19 October 2015

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19 October 2015

Global gas spot prices - what will set the floor?

Report summary

The combination of slower Asian LNG demand growth and low oil prices has developed stronger price convergence between gas spot prices in Asia and Europe. And looking ahead, 130 mmtpa of new supply can be seen coming into the market over the next 5 years, mostly from Australia and the US. As the global market absorbs all the new LNG, as it tries to balance, new floors for spot prices are likely to be tested. We address some of the levers that will influence global gas price floor levels. This includes demand response – coal/gas competition in Europe and additional power demand in Asia including from coal displacement. It also includes supply response – from high cost gas in China, shut-in of US LNG and Russia's behaviour. We conclude that the price of coal will be a key determinant to future gas spot prices and the potential for shut-in of US LNG.

Executive Summary
LNG oversupply is ahead, testing new floors
Demand
- Trigger prices for coal displacement in continental Europe are much lower than the UK
Supply
- Social benefits and NOC competition will restrict the scale of high cost Chinese indigenous gas shut-in
- US LNG exporters will be scrutinising their cash costs
- Behaviour of major suppliers, most notably Russia, will remain key
Conclusions