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Morgan Stanley Says The Global Gas Surplus May Hit Highs Not Seen In Decades In The Upcoming Years

Morgan Stanley Says The Global Gas Surplus May Hit Highs Not Seen In Decades In The Upcoming Years
Following a warmer-than-expected winter, natural gas supplies are exceeding supplied, which has caused prices to plummet globally.
Liquefied natural gas had a recent boom in prices and earnings, which sparked a surge of investment in the industry. There is currently a "record wave of expansion" with over 150 million tonnes of annual LNG capacity under construction, according to a recent note from Morgan Stanley. This is a "significant supply growth" for a market that is now above 400 mtpa.
“We expect gas market oversupply to reach multi-decade highs over the coming years,” Morgan Stanley’s commodity strategists said.
The price of natural gas is currently down 22% this year, standing at $1.83 per MMBtu (metric million British thermal unit).
In major LNG-consuming nations, the demand for gas for heating has decreased due to a warmer-than-normal winter.
“Global natural gas prices have been trending downwards owing to mild winter conditions experienced in the Northern Hemisphere regions like US, Europe and North Asia,” Zhi Xin Chong, S&P Global’s head of emerging Asia gas and LNG markets, said.
According to him, the consequent higher-than-average storage levels have had a "major impact on prices," which have been declining since October.
The world's biggest LNG consumer, the United States, reported having the warmest winter ever. The second-warmest winter on record was recorded in Europe. In a similar vein, Japan experienced its second warmest winter on record with an average temperature 1.27 degrees Celsius above normal.
Benchmark natural gas spot prices on a monthly basis fell to an all-time low of $1.72 per MMBtu in February. Additionally, some parties may be able to take advantage of the decreased pricing.
What does it signify in terms of various nations?
According to Chong, "Countries in Europe will definitely benefit the most from these low prices."
Europe's LNG imports increased to 35% of its overall gas supply mix after Russia cut back on supply; the majority of these imports are made at spot prices. Therefore, the decreased prices help to maintain the affordability of fuel imports.
According to Morgan Stanley, India and Southeast Asia are among the other major benefits. Since 30% to 50% of their energy supply are imported gas, India and Thailand stand to gain the most from lower LNG prices. India has some of the most elastic petrol demand, which means that as prices drop, people would buy more. Thailand is among the leading developing market economies in terms of petrol consumption per capita.
The world's plenty of LNG storage capacity highlights the bearish fundamentals for prices, but Lu Ming Pang, senior analyst at Rystad Energy, noted that demand may increase if low prices draw back emerging and second-tier players like China.
“All these factors seem to point to a price floor,” said Chong.

Christopher J. Mitchell

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