Power Up: Burning off surplus gas
Power Up is published on Mondays and Thursdays. Think your friend or colleague should know about us? Forward this newsletter to them. They can also subscribe here.
Aug 1 - By JohnKemp, Senior Market Analyst
Welcome to Power Up.This week’s newsletter is mostly about gas. Despite rapid growth of LNG, the global market remains fragmented. U.S. producers are struggling with stocks that are still too high after a mild winter, sending real prices slumping towards 30-year lows. In Germany, however, prices are too high after Russia’s invasion of Ukraine, causing manufacturers to think about relocating to secure cheaper fuel. And in Vietnam, power price controls are putting plans for a big expansion of LNG-fired electricity at risk.
U.S. gas market remains bloated
Prices slump as stocks remain high despite heatwave
U.S. natural gas prices have slumped again to some of the lowest levels in decades, after adjusting for inflation, amid slow progress absorbing the huge surplus inherited from a very mild winter in 2023/24.
After bouncing a little in May and June, front-month futures prices slipped to an average of just $2.25 per million British thermal units in July. In real terms, prices have only ever been lower between February and April this year and during the crisis caused by the first wave of the coronavirus pandemic in 2020.
Ultra-cheap prices have encouraged record gas-fired generation but have so far made only a small dent in the enormous stocks inherited from last winter. Working inventories were the second highest on record for the time of year in the middle of July and 17% above the prior ten-year seasonal average.
Cheap fuel has incentivised some of the least efficient gas-fired generators to run their units for more hours largely at the expense of coal-fired plants. Single-cycle gas turbines and steam generators, which normally run only as peaking plants, ran at the highest level on record for the time of year in April.
Gas-fired generation hit daily records last month during a heatwave across much of the Lower 48 states and with solar generation in California and other western states hit by wildfires. But it has not been enough to wipe out the glut.
Extraordinarily low prices are sending the strongest possible signal to producers on the need to cut drilling and output even further after an initial round of cuts announced in February.
Prices will remain lower for longer until the inventories start to converge with the long-term seasonal average, most likely by the end of winter 2024/25.
Essential reading
U.S. energy exportsespecially crude oil and LNG are likely to be top targets for retaliation if a second Trump administration increases tariffs on imports from China and other major trading partners. China could easily substitute U.S. crude and gas, forcing exporters to find other markets, and leading to another big geopolitical shake up in commodity flows.
Vietnam is likely to miss its target of developing 13 LNG-fired power stations accounting for 15% of generation capacity by 2030 because the government insists on capping power sales prices. The current cap is slightly above market prices but without an assurance future fuel cost increases can be passed on to customers, developers are likely to balk at building new power plants.
India generated record amounts of power from coal and gas during the heatwave in May and June, underscoring the electricity system’s continued reliance on fossil fuels despite rapid deployment of renewables.
California’s power generation has been adversely affected by wildfires as smoke hit output from solar farms, just as demand peaked due to heavy use of air conditioners over the summer. As solar output faltered, generators turned back to coal and gas to make up the shortfall.
China’s solar panel manufacturers boosted exports to a record high in by slashing prices the first half of 2024. Excess capacity at home left the industry depending on exports, but worsened tensions with the European Union, which is trying to protect its own solar manufacturers.
Germany’s manufacturers are increasingly thinking about relocating abroad to escape high energy prices following Russia’s invasion of Ukraine and the sanctions imposed in response. In a survey, 37% of companies were thinking about moving from 31% in 2023 and 16% in 2022. For energy-intensive industrial firms, the proportion thinking of cutting output or moving was as high as 45%.
We hope you're enjoying the Power Up newsletter. We'd love to hear your thoughts and feedback. You can reach us at: powerup@thomsonreuters.com
Editing by Marguerita Choy
Ultime news
Disclaimer: le entità di XM Group forniscono servizi di sola esecuzione e accesso al nostro servizio di trading online, che permette all'individuo di visualizzare e/o utilizzare i contenuti disponibili sul sito o attraverso di esso; non ha il proposito di modificare o espandere le proprie funzioni, né le modifica o espande. L'accesso e l'utilizzo sono sempre soggetti a: (i) Termini e condizioni; (ii) Avvertenza sui rischi e (iii) Disclaimer completo. Tali contenuti sono perciò forniti a scopo puramente informativo. Nello specifico, ti preghiamo di considerare che i contenuti del nostro servizio di trading online non rappresentano un sollecito né un'offerta ad operare sui mercati finanziari. Il trading su qualsiasi mercato finanziario comporta un notevole livello di rischio per il tuo capitale.
Tutto il materiale pubblicato sul nostro servizio di trading online è unicamente a scopo educativo e informativo, e non contiene (e non dovrebbe essere considerato come contenente) consigli e raccomandazioni di carattere finanziario, di trading o fiscale, né informazioni riguardanti i nostri prezzi di trading, offerte o solleciti riguardanti transazioni che possano coinvolgere strumenti finanziari, oppure promozioni finanziarie da te non richieste.
Tutti i contenuti di terze parti, oltre ai contenuti offerti da XM, siano essi opinioni, news, ricerca, analisi, prezzi, altre informazioni o link a siti di terzi presenti su questo sito, sono forniti "così com'è", e vanno considerati come commenti generali sui mercati; per questo motivo, non possono essere visti come consigli di investimento. Dato che tutti i contenuti sono intesi come ricerche di investimento, devi considerare e accettare che non sono stati preparati né creati seguendo i requisiti normativi pensati per promuovere l'indipendenza delle ricerche di investimento; per questo motivo, questi contenuti devono essere considerati come comunicazioni di marketing in base alle leggi e normative vigenti. Assicurati di avere letto e compreso pienamente la nostra Notifica sulla ricerca di investimento non indipendente e la nostra Informativa sul rischio riguardante le informazioni sopra citate; tali documenti sono consultabili qui.
