Some analysts and market participants said there is a possibility that natural gas prices will go down to negative territory, dragged by low demand and lack of storage space, replicating what happened to crude oil prices more than a month ago. Crude prices have since performed a robust recovery thanks to a deal by producers to curb a surplus. On the other hand, global natural gas producers have not established a cartel which can arrange an effective measure to control the current extraordinary oversupply.
Natural gas is used to generate power and produce chemicals and fertilizers, but demand for those items has fallen deeply amid restrictions aimed to contain the coronavirus pandemic. This came after a mild winter which reduced demand for heating gas. An international consultancy group expected global LNG demand to drop 2.7% in this year’s summer, marking the first seasonal decline in 8 years.
Importers of US LNG have cancelled dozens of shipments for loading this summer. Shipments from other suppliers, such as Norway, Malaysia, and Brunei, also dropped last month. However, analysts said the curb is not enough to balance supply-demand dynamics. Russian gas flows to Europe via Yamal-Europe pipeline have risen again in June after fluctuating In May. There is also little indication that Qatar will reduce its supply.
Meanwhile, data compiled by Gas Infrastructure Europe showed the region’s gas stocks had reached their seasonal high of 73% capacity, well above the five-year average of 45%. Some analysts said Europe might become the first market which experiences ideal conditions for negative prices.
The region has been acting as the “sink” for global gas which houses many buyers, traders, and flexible infrastructure allowing to both import and export cargoes. With such capability, Europe can balance between energy-hungry Asian countries and booming production from the US. If European gas prices went below zero, it would send ripple effects for both US producers and Asian buyers.
