Global gas markets expecting further weakness during Q2

• European Q2 gas looks bearish

• US producers eye crude prices

• Indian demand may cut Asian LNG prices

LONDON (ICIS)–Global gas and LNG markets could come under further pressure in April as major demand centres in both the European and Pacific basins tighten restrictions to tackle to the coronavirus.

The outbreak has crippled equity and commodity markets with all benchmark gas hubs faltering on weakened demand profiles.

EUROPE

The Dutch TTF front-month closed at €7.85/MWh on 23 March, trumping the previous low record of €7.9/MWh recorded in August 2009.

The May ’20 contract also closed below the key €8/MWh support level, almost half the value of the product for delivery in the same month last year.

Traders are pricing in the expectation of lower demand well into the second quarter.

This, combined with storage sites being around 17 percentage points more full than one year earlier, could lead to further losses across European gas curves.

The TTF and NBP Summer ’20 were trading 29% and 24% down on the start of the year during the session on 24 March.

NORTH AMERICA

In the US plunging crude prices coupled with the expectation of softening demand due to the virus have pushed near-term Henry Hub futures well below the $2/MMBtu mark.

The Henry Hub front month and month+2 contracts were both dealing around $1.65-1.75/MMBtu on 24 March.

Brent and WTI futures have crashed by 58% and 60% respectively since the start of the year, driven by both coronavirus demand weakness and an oil-price conflict between Russia and Saudi Arabia.

Although European markets have largely decoupled from oil, this is not the case in the US as around 40% of shale production consists of associated natural gas.

A sustained period of low oil prices could force US shale producers to strip back supply, which would tighten the gas market.

This has not yet corresponded with any uptick in Henry Hub futures, potentially due to high storage levels after a weak winter period and no signs of lower production.

ASIA PACIFIC

A pick-up in spot LNG demand in Asia has opened the east-west arbitrage, which could tempt LNG sellers into the Pacific basin.

Most deals would have been completed for April, but looking at May delivery the East Asia Index (EAX) premium over the NBP was $0.8/MMBtu on 20 March, $0.42/MMBtu higher than the year-to-date average.

If the appetite to ship more cargoes into Asia increases, a drop off in supply into Europe could support near-term contracts.

However some weakness could be about to re-enter Asian markets because of a sharp demand drop expected in India.

Asian LNG prices came under pressure on 24 March as the government in India tightened travel and work restrictions due to an increased number of coronavirus cases.

A source at a state-run LNG importer said all but essential staff at the firm were asked to work from home until at least 31 March, with the same being the case for other big government-owned industrial firms.

Global oversupply due to surging LNG production has meant price correlations between European and Asian hubs have strengthened.

This means large portfolio participants will be looking at movements across both the Atlantic and Pacific.