From glut to shortages. During downturns in major commodity markets there is a tendency to get all doomy and gloomy about the future and get locked into a lower than longer mentality. That kind of short-term thinking has engineered a major bottom in petroleum and now that type of thinking may make an on impact natural gas.
In the U.S., we fear a market collapse on Henry Hub natural gas in the spring, as record production should refill storage and cause a U.S. glut. In the big picture, we are sowing the seed of a future shortage. Shell is warning that despite the global glut of natural gas we are on the path to a major Liquified Natural Gas LNG shortage.
Royal Dutch Shell says the world could face a shortage of liquefied natural gas within a decade because of underinvestment in new projects and because of what should be a major demand surge during that time as users will increase their usage of natural gas because of the current cheap prices and the environmental benefits of natural gas. Shell warns in its annual LNG outlook, that because of low prices the demand for liquefied natural gas grew by 29M metric tons last year, 30% more than previously expected, to 293M tons.
Shell says that they expect LNG demand to grow by a explossive 500M metric tons/year by 2030. Supplies on the other hand will fall by 300M tons/year due to a lack of new projects and natural declines in existing production. LNG buyers should heed the warning as long term hedges at this point are relatively cheap but thinly traded. While this is a problem for down the line, it is not too early to be getting prepared. Speculators though can sell this market in the short term in the U.S. because we will see more production in the coming months and a bit of a pullback in demand.
Oil prices gain ground after early weakness as the U.S. stock market shot to the sky. This helped oil overcome worries about a potential large increase in weekly supply and more refineries going into maintenance. Saudi Arabia was making news overnight. Reuters reported that Saudi Arabia’s King Salman reshuffled some of the kingdom’s top military officers and several deputy ministers on Monday, in a broad shakeup seen as elevating younger officials in key economic and security areas. This comes as the war in Yemen is dragging on and has not gone well for the Saudis.
