What to make of falling gas prices

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India’s commerce minister has told the Financial Times that trade policy has no role in fighting climate change, in a setback to efforts to address global warming through measures at the World Trade Organization’s biennial conference. More on his remarks from our colleagues Andy Bounds and Alan Beattie in Abu Dhabi here. 

The FT also has a story today on whether European carmakers can rival China’s BYD, the world’s largest manufacturer of electric vehicles. Though the company only started selling in Europe a little over a year ago, it is already making inroads, Peter Campbell and Josh Gabert-Doyon report. 

Today’s newsletter looks at the fall in gas prices on both sides of the Atlantic. An unseasonably warm winter has helped fill gas inventories faster than expected, dragging down prices in the US and Europe. 

One more thing: the FT has launched its US Election Countdown newsletter to guide you through one of the most significant elections in decades with big consequences for US energy policy and its leadership on climate. Sign up here.

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Amanda

Global gas prices slide on weak demand and full stocks

Two years after Russia’s full-scale invasion of Ukraine sent energy markets into disarray, prices for gas have tumbled to multiyear lows as the world grapples with a supply glut. 

The European benchmark, Dutch TTF, closed below $7.30/mmbtu last week, levels last seen pre-energy crisis and down more than 90 per cent from the record highs seen in the early months of the war, according to energy consultancy ICIS. Prices in Asia have also fallen sharply.

While the US market is insulated from the rest of the world, benchmark Henry Hub contracts for March also slipped to a near three-decade low earlier this month, excluding a handful of days in the Covid-19 pandemic. 

The slide in gas prices around the world shares some common denominators and points to bigger questions regarding Europe’s industrial recovery and the role of gas as a transition fuel.

“We’re coming out of a period of a substantially tighter market, which we haven’t seen previously at any point in global gas,” said Samuel Good, head of energy pricing at Argus Media. “The balance between supply and demand is much looser than they have been in almost two years, and we would expect that easier balance to continue.”

The northern hemisphere is experiencing one of the hottest winters on record due to climate change and El Niño weather patterns. This has muted demand for gas in the US and Europe, filling up inventories weeks before spring, when gas is typically injected into storage, and lowering the prices for Asian traders to compete for shipments. Meanwhile, in the US, gas production has marched to new heights, depressing prices and tilting the market into oversupply. 

“We have too much gas. There’s not enough storage, and so prices have to go to a point where they curtail supply,” said Ademiju Allen, senior analyst at Rystad Energy. 

Market conditions have pushed US gas producers Chesapeake Energy and Coterra Energy to cut production guidance for 2024. Analysts expect further pullback from producers and for US gas prices to tick up at the end of this year and in early 2025 as more liquefied natural gas export capacity comes online (President Joe Biden’s pause on LNG permits won’t have much near-term impact on the market).

What sets this commodities cycle apart from previous ones is what will happen in Europe. The continent has at least one more winter before new LNG supply replaces the loss in Russian imports and it’s clear of the energy crisis. But this period of lower prices could serve as a test of whether Europe’s industrial sector has a chance of recovery. S&P Global Commodity Insights estimates approximately 6-10 per cent of European industrial gas consumption is gone forever due to demand destruction.

“It’ll take some time . . . before we can really begin to believe that energy is affordable,” said Tom Marzec-Manser, head of gas analytics at ICIS.

Samantha Dart, head of natural gas research at Goldman Sachs, says Europe’s price situation is a “preview” of what it can expect at the end of the decade when a surge in LNG exports oversupplies the market, further pushing down prices and helping reduce the risks of industrial offshoring. The firm expects 204 mmtpa of new LNG supply by 2028, twice the amount of Russian supplies curtailed by Europe.

Lower gas prices have implications for the energy transition, potentially keeping consumers hooked on the fuel for longer. It could also boost gas’s image as a transition fuel from coal to renewables, especially in Asia, the biggest source of new gas demand growth. Qatar made big bets on the market this week, announcing it will increase LNG production capacity by almost 85 per cent before the end of the decade.

“When we make long-term investment decisions for the energy transition, we should not base them on current spot prices, but we inevitably do,” said Michael Stoppard at S&P Global Commodity Insights. “There was a big shift against natural gas, of course, when the price was very high, and it was seen as unreliable. Now there’s a feeling that natural gas is back again . . . and it will make competitive support for renewables more difficult.”

Job Moves

• Carlyle has hired Jeff Currie, the former global head of commodities research at Goldman Sachs who predicted a mid-2000s boom in oil prices, to help the US private capital group invest in energy market trends.

• South Pole has appointed Daniel Klier as chief executive of the climate consultancy, succeeding interim chief John Davis. Klier currently heads ESG Book, a sustainability data platform.

• Ørsted has picked Trond Westlie as its new chief financial officer and Patrick Harnett as chief operational officer. Westlie has served as CFO at numerous companies, including AP Møller-Maersk, and Harnett currently serves as Ørsted’s head of European execution programmes. The appointments come after Daniel Lerup and Richard Hunter stepped down as CFO and COO, respectively, last year.

• American Electric Power announced Benjamin Fowke will serve as interim chief following the removal of Julie Sloat, whose tenure lasted less than 14 months. Fowke previously served as chief executive of Xcel Energy.

• Sunnova appointed Paul Mathews as executive vice-president and chief operator officer of the residential solar company. Mathews joined Sunnova last year as executive vice-president of service and supply chain.

Power Points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.