Global natural gas industry development status and trend analysis

-- The continuous high temperature in the Northern hemisphere this summer is in sharp contrast to the decline in rainfall during the rainy season. Drought conditions in North America, Russia and many parts of Europe have occurred to varying degrees. The dry weather has caused shortages of hydropower and increased demand for natural gas as an alternative energy source. In the Southern Hemisphere, countries such as Brazil and Argentina are also experiencing severe droughts, and the reduction in hydropower generation has increased the demand for heat distribution in these countries, and natural gas consumption has surged.

Affected by the climate, the overall wind volume in the northern Hemisphere has generally declined this year, from the United Kingdom to Germany, many countries have seen a sharp decline in wind power generation in the first half of the year. Wind power generation is the most important source of renewable energy in many countries, especially in European countries. In order to fill the gap in wind power generation, natural gas power generation needs to be used as a supplement, driving the further growth of natural gas demand.

Finally, in the context of the low-carbon transformation of the global energy system, natural gas has obvious advantages over coal in terms of carbon emissions, and carbon trading costs continue to rise, fueling the demand for natural gas. At the end of 2020, the European Parliament agreed to raise the 2030 greenhouse gas reduction target from 40% to 55%, and carbon emission control is becoming more stringent. In July 2021, the European Commission put forward an energy and climate package called "Fit for 55", which proposes to further tighten the carbon trading market and reduce the total amount of carbon credits in the carbon market reform. As the policy continues to tighten, the price of carbon trading in the EU has soared. Data from the Intercontinental Exchange (ICE) show that as of the end of November, the EU carbon price has exceeded 70 euros/ton, compared with the price of 34 euros/ton when the fourth trading phase of the EU carbon market was launched on January 4, the EU carbon price has doubled this year. Because of the lower cost of carbon emissions from gas and electricity, as carbon prices rise, the demand for natural gas from power plants increases.

2. Natural gas prices hit record highs

Affected by factors such as supply and demand imbalance, extreme climate, and energy transition, global natural gas prices have risen all the way, and have become the largest increase in energy commodities this year. With a base period of March 2021, average monthly gas prices in Europe and Asia have increased by almost four and five times respectively by October 2021. The soaring price of natural gas has triggered a series of ripple effects in alternative energy markets such as coal and oil, as well as in electricity markets. In the context of economic globalization, the energy problem continues to ferment, and the shortage of energy supply is spreading around the world.

In late 2020 and early 2021, strong demand caused by cold weather led to a surge in LNG prices in the Asian spot market, before temperatures recovered and gas prices fell to normal levels. The story in Europe was similar to Asia, where gas prices retreated after rising for two months in a row. In mid-February 2021, the United States experienced the most extreme cold weather in many years, causing natural gas prices to rise sharply.

Entering March, natural gas prices in major markets around the world were mainly stable, with a small range of shocks. Subsequently, driven by many factors such as market supply and demand mismatch, natural gas prices continue to rise, and in the third quarter, the first European natural gas prices led the world, and then the rise extended to the spot market in Asia and other places, natural gas jumped to become the largest increase in energy commodities this year. On October 27, the Henry Hub natural gas main contract in the United States reached $6.2 / million British thermal units, up 87.3% year on year. At the end of October, the main contract price of the Dutch TTF, which represents the European benchmark, closed at 74.3 euros per megawatt-hour (about $25.43 / mmBTU), and the December spot LNG CIF price in Asia reached $26.534 / mmBTU, both at historic highs. Using March 2021 as the base period, the average monthly price of natural gas in Europe and Asia has increased by nearly four and five times respectively by October 2021, and the average monthly price of natural gas in the United States has also doubled. In contrast, the price of pipeline gas supplies has been less volatile, but has also risen by more than 50%.

Considering the imbalance between supply and demand, energy transition and other factors, coupled with the "La Nina" phenomenon again this winter, global natural gas prices will not fall significantly in the short term. Industry consultancy Wood Mackenzie pointed out that there will not be any weakness in LNG prices going into winter, and demand side management and eventual power rationing may be the last resort.