Recent volatility in the US and global gas prices will likely continue over the next 12 to 18 months fuelled by diminished capacity in the coal market and supply uncertainty in Europe.

Citing experts at the ERAWeek by S&P Global energy conference, S&P Global Platts in its Commodity Insights on March 8, however, said the current global crisis could drive new infrastructure investments that help to ease volatility in the longer term.

Over the past six months, US gas prices have hit historic highs, briefly trading at over US$6 (RM25.11) per million British thermal units (MMBtu) this winter, it said.

Global prices meanwhile have surged, recently trading as high as US$65 in Europe and nearly US$85 in Asia in the wake of Russia’s invasions of Ukraine.

S&P said that while short-term drivers of volatility will be slow to change, meaningful additions to the US and global natural gas infrastructure, including storage, pipelines and increased LNG export capacity could bring stability to the gas market longer term.

In the US market, a steady rebound in domestic gas production over the past year has failed to keep pace with a surprisingly quick economic recovery, leaving the market short on supply this winter.

S&P cited Goldman Sachs head of natural gas research Samantha Dart as saying diminished capacity in the domestic coal market has been a major factor behind the US gas market’s inability to cap the runup in prices this winter with numerous generators simply unable to switch to coal based on prices alone.

“We estimate that there’s about 5 Bcf/d of swing demand between gas and powder river basin coal.

“Despite incentives for full substitution, gas demand has consistently surprised to the upside,” she said.

Infrastructure
S&P said delays in building new infrastructure across the gas value chain have also increased the potential for pricing volatility, citing panellists.

Sempra Infrastructure regional vice president of external affairs and communications Brian Lloyd said: “It sets you up for a lot more volatility if you don’t have the infrastructure to move gas to the regions that aren’t cold to the regions that are cold.”

Lloyd said even brownfield expansions of pipeline infrastructure can get stuck in the permitting process, pointing to a case of a compressor station upgrade in Arizona that has been before Federal Energy Regulatory Commission for 25 months.

Permitting delays can also dampen production growth, exacerbating supply-demand gaps when they emerge.
Source: The Edge Markets