There’s More Upside For Natural Gas Prices

[Tom Nolan + 2,443]

There’s More Upside For Natural Gas Prices

By Irina Slav - Oct 06, 2020, 1:00 PM CDT

https://oilprice.com/Energy/Energy-General/Theres-More-Upside-For-Natural-Gas-Prices.html

With winter around the corner, the outlook for natural gas demand just got a boost. Forecasts, for now, seem to point to a normal winter, meaning a rise in gas demand for power generation and heating. But will prices follow? They are already improving in Asia, not least because weather forecasts suggest a colder than usual winter. The spot price for natural gas in Northeast Asia has recovered from the record lows reached earlier this year amid the pandemic and currently hovers around $5.20 per million British thermal units, similar to pre-pandemic levels although still lower than the average of $6 per mmBtu gas traded at this time last year in Northeast Asia.

The news from China specifically is also good: imports of liquefied natural gas this year are seen up 10 percent this year from last as local industries snap up cheap cargos while the oversupply lasts. Business activity in Asia’s hothouse is improving and consumer demand appears to be strengthening too post-pandemic, which will drive greater demand for LNG. Total gas demand, however, is likely to be weaker than some might hope: a recent government report forecast gas demand growth this year at 4.2 percent. This would be the slowest rate of growth for the last five years.

In India, the picture is perhaps a little more optimistic. The country’s largest gas processing and distribution company, GAIL, said that local demand for gas had recovered to pre-pandemic levels, which prompted the company to reopen its gas import facility in the western part of the country, where cases of Covid-19 are still rising. India satisfies about half of its gas demand from imports.

Gas demand in Europe is also picking up and with it, prices. Between May, when they hit a trough, and last month, spot prices for natural gas at the Title Transfer Facility rose by 265 percent to over $3.60 per mmBtu, the Wall Street Journal reported in mid-September citing S&P Global data. Excessive stocks have dwindled, which bodes well for LNG exporters ahead of the winter season.  On the flip side, if Covid-19 cases continue to surge in Europe, movement restrictions would be tightened further, which would likely affect gas demand even during peak demand season. In the summer, Europe canceled a lot of LNG cargoes amid a slump in demand, and pipeline imports from Russia also fell substantially because of the devastation that the pandemic wreaked on demand. Storage facilities filled up in the low season, making Europe unable to absorb excessive stocks elsewhere as it has traditionally done. It is doubtful whether we will see a repeat of that situation thanks to the seasonal factor, but natural gas’s good fortunes in Europe are not exactly guaranteed, either.

Supply, meanwhile, has been shrinking not just because of the improving demand that has helped draw down inventories, but also thanks to a couple of outages in Australia, which last year took the crown of largest LNG exporter by capacity from Qatar. Shell’s Prelude LNG project has been offline since the start of the year and the company only last month began preparations to restart production. Prelude has an annual capacity of 3.6 million tons of LNG. Chevron, operator of the 15.6-million-ton Gorgon project, will be shutting down all three trains gradually after it detected damage in a key component of the liquefaction equipment.

Supply has also declined in the United States, where a lot of natural gas is extracted as a by-product of oil drilling in the shale patch. Last year, this became a problem, especially in the Permian where a shortage of pipeline capacity to take away the gas pressured prices. This year, when shale drillers started shutting in oil wells in response to the price slump, gas production also fell, eventually reducing the gap between supply and demand and stimulating prices.

For now, gas fundamentals look good for sellers and also good for buyers. It would only be a matter of time for this to change but with winter coming, unless the weather cheats again remaining milder than usual, gas prices may be in for a further rally.

By Irina Slav for Oilprice.com

[Tom Nolan + 2,443]

Natural Gas Offers Lifeline For Distressed Gulf Oil Giants

By Alex Kimani - Oct 06, 2020, 3:00 PM CDT

https://oilprice.com/Energy/Energy-General/Natural-Gas-Offers-Lifeline-For-Distressed-Gulf-Oil-Giants.html

Their budgets just don't add up anymore. Oil-rich Arab nations are in the throes of a deep economic crisis and facing gaping holes in their finances. Saudi Arabia needs the price of Brent crude to rise to $76 dollars a barrel while UAE needs it to hit $69, Bahrain $96, and Oman $87 to balance their books. Save for tiny Qatar, no Arab oil producer can balance its books at the current price of $40/barrel. GCC nations are now facing huge fiscal deficits, with Kuwait's deficit of ~40% of GDP the highest in the world.

To make matters worse, once free-flowing credit lines have started to shut down for some. A good case in point is Oman, which is struggling to borrow after credit-rating agencies listed its debt as junk. Jordan had to plead to receive a $2.5bn aid package from the Gulf, only half of what it got eight years ago. Meanwhile, no one from the Gulf appears willing to bail out cash-strapped Egypt or Lebanon.

In short, the countries are being forced to take pretty drastic steps.

Saudi Arabia has tripled its sales tax, raised petrol prices, and suspended a cost-of-living allowance for state workers. Still, its budget deficit could exceed $110bn this year (16% of GDP). The Algerian government has said it will slice spending in half while Iraq's new prime minister has vowed to take an ax to government salaries. 

Yet, not all GCC states are facing the same level of pain. Specifically, nations rich in natural gas are faring much better thanks to improving commodity prices. Indeed, Qatar, the largest exporter of LNG in the world, needs only $39/barrel to balance its books. 

Natural gas prices have surged from their June low of $1.48/MMBtu to trade at $2.60/MMBtu due to increasing demand and falling inventories.

Fighting for market share

Jousting for market share at a time of massive supply/demand imbalances was the key reason why oil markets recently entered uncharted waters after dipping into negative territory. Leading natural gas producers have, however, been treading on the same path despite natural gas recently sinking to multi-year lows due to a major supply overhang. 

Indeed, back in May, Qatar remained adamant that it will not curb its LNG exports as it battled for market share against the likes of Australia, the United States, Russia, and Norway.

Qatar began sending its LNG exports to northwestern Europe in February after the coronavirus pandemic engulfed its main Asian markets and crippled demand. However, it was not long before Europe itself started feeling the heat of the health crisis with demand sharply plummeting in April. The Persian Gulf state even borrowed a leaf from its oil brethren by storing its excess LNG cargoes--with the country's NOC, Qatar Petroleum, storing LNG inventories at Belgium's Zeebrugge import terminal where it has booked all the import capacity till 2044.

Never mind the fact that storing LNG is much more expensive—and therefore a much shorter-term solution—than storing crude oil due to the former's "boil-off" rate, which can lead to daily losses in the range of 0.07% to 0.15%.

Qatar's low production costs, especially at its Ras Laffan plant, allow it to be the "most efficient" LNG producer and leaves it better placed than other producers in a battle for market share. Qatar exited OPEC in January 2019 as it sought to play a more prominent role on the global scene. Though a member of Gas Exporting Countries Forum (GECF), the organization lacks the decisiveness of OPEC, usually preferring to take a hands-off approach.

But Qatar has not stopped there. The country has recently announced that it will go ahead with its massive liquefied natural gas (LNG) capacity expansion. In effect, Qatar is betting that it can beat other LNG producers through low production costs and co-production of condensates and liquefied petroleum gas (LPG). 

But Qatar will soon have to contend with fierce competition from closer to home as Saudi Arabia and the UAE join the fray. Last year, Saudi Arabia launched the biggest shale gas development outside of the United States with Saudi Aramco unveiling plans to pump $110 billion over the next couple of years to develop the Jafurah gas field, which is estimated to hold 200 trillion cubic feet of gas.

Meanwhile, the UAE plans to become self-sufficient in gas supply by 2030 by developing the giant Jebel Ali reservoir, the world's largest discovery of its kind in 15 years.

By Alex Kimani for Oilprice.com

 

[Tom Nolan + 2,443]

The U.S. Fell Short In Providing Effective Oil And Gas Relief

By Tsvetana Paraskova - Oct 07, 2020, 4:30 PM CDT

https://oilprice.com/Latest-Energy-News/World-News/The-US-Failed-To-Provide-Effective-Oil-And-Gas-Relief.html

Hastening to approve relief for oil companies after the price crash, the U.S. Bureau of Land Management (BLM) adopted an unclear policy for temporary royalty relief on federal lands. But that relief was inconsistently applied across states, the nonpartisan Government Accountability Office (GAO) said in a report this week.  

The BLM implemented a policy in March aimed to prevent oil and gas wells from being shut down in a way that could lead to permanent losses of recoverable oil and gas, but that policy is not without controversy. The U.S. Administration had dismissed the idea of an overall blanket royalty rate reduction on federal land and offshore, instead saying that it would consider applications for two-month royalty rate cuts on a case-by-case basis.  

The BLM has issued guidance regarding the steps that oil and gas operators can take when applying for a Royalty Rate Reduction (RRR) due to COVID-19 impacts.  

According to GAO’s report, five BLM state offices received applications for temporary royalty relief for a total of 1,689 oil and gas leases From March between and June. The office approved 581 of these, but the GAO found that the BLM implemented the policy inconsistently. 

It is also unclear just how the temporary royalty relief policy has benefited taxpayers or how much in federal revenues have been forgone, the GAO said.

“According to BLM officials, the BLM state offices made inconsistent decisions about approving applications for temporary royalty relief because BLM’s temporary policy on royalty relief did not supply sufficient detail to facilitate uniform decision-making among the offices,” Frank Rusco, Director for Natural Resources and Environment at GAO, said. 

As a whole, actions are needed to improve the BLM’s royalty relief policy, according to GAO, which recommended that the Director of the BLM evaluate whether the program met the objective of conserving oil and gas resources from becoming unrecoverable, and how much it cost the federal government. Another recommendation was the update of BLM’s 1995 royalty handbook “to provide specific, consistent, and transparent policies and procedures for royalty relief.” 

By Tsvetana Paraskova for Oilprice.com