International LNG prices fall back

Mike Zaccardi, CFA, CMT

Front-month Dutch liquified natural gas prices have fallen back below US Henry Hub’s price in the last couple of days. Dutch TTF and the UK NBP benchmark price had recovered its sharp springtime losses this month, but sellers once again resumed control.

US LNG export demand has fallen from around 9 Bcf/day to near 4 Bcf/day. That 5 Bcf/day of losses is impactful to the overall supply/demand balance in the natural gas market. Less demand means more net supply and weaker prices. And that has narrative has played out.

US natural gas currently rests near 25-year lows when you consider the time of year. Normally natural gas tends to perk up a little bit as we near the heart of summer, so natural gas traders are particularly pessimistic right now with the US benchmark price near $1.80.

Utilities closely monitor the price of natural gas as it is one of the biggest price inputs to their daily operations. The higher natural gas prices go, the more the utility must spend to run their power gas-fired power plants. And there are more natural gas-fuel generators now than ever.

The EIA recent published their Short-Term Energy Outlook that detailed the state of the market when it comes to the overall generation mix. The EIA expects natural gas to account for 41% of utility-scale electricity generation this year versus 37% in 2019. 2021, however, will see the share of natural gas decline to 36% due to higher prices and growing renewables.

Back to LNG – a near-term dip in exports should continue into the third quarter of 2020 before a rebound as year-end approaches. Market participants will closely monitor when that increase in exports takes place – it will greatly affect the supply/demand balance in the natural gas market.

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Chart used with permission from TradingView.com