Report: Natural gas scripting its way back in the market

Author: Forex Live | Category: Education

A closer look at natural gas in the commodities market

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The commodity market is largely uncertain and requires the attention of investors all time. It works on the demand-supply ratio, which can fluctuate even by the slightest policy change of developed countries. Compared to several other fossil fuels, it is cleaner, cheaper and effective to use for industries. More importantly, it is good for the environment. The fuel travels by pipeline and which increases its cost. But due to several advantages, several countries are in favour of its usage. And that's why natural gas is scripting its way back into the market, benefiting investors. 

Investment in energy companies 

There are several energy companies like British Gas, EDF Energy, NPower, E.ON, Scottish Power etc. which have spent or invest millions of dollars building liquefaction facilities for drawing benefits in the market of liquified natural gas. 

Interestingly, in 2019, the global LNG market hit 359 million tonnes in extraction. It was enough to light as much as 722 million homes as per Royal Dutch Shell. Notably, the numbers were around 12.5 per cent more than the 2018 levels. Compared with the year 2000, it was 3 times higher. 

However, the COVID-19 pandemic inflicted some breaks on its growth in 2020. That was a setback. It delayed some of the crucial projects, which led to uncertainties. 

The monthly exports of LNG decreased by 17 per cents from January to July 2020. That was the massive effect of the pandemic. 

In the first half of 2020, global demand also fell by almost 4 per cent (year-on-year). However, mild winter in the Northern Hemisphere was also one of the reasons partially for the plunge. The mature of the bigger markets took the biggest hit. 

 Asia, Europe and North America witnessed the biggest plummets. If congregated, these markets alone accounted for 80 per cent of the forecast drop during the period. 

When lockdowns were imposed in several nations and the virus was at its peak, the second quarter saw the biggest losses during those times in the spot price of natural gas. 

Meanwhile, the pandemic resurgence has recently put a question mark on the prospect of 2021 concerning natural gas. The pace of recovery is dwindling and creating doubts in industrialists and buyers' minds at the same time. However, some experts expect that the demand for natural gas might be shot up by three per cent. 

The Middle East's swift growing markets and Africa can cast some spell to fetch the projected mark and support the prediction of the market stalwarts. On the contrary, other markets may not see the same fortunes of 2019 until 2022. 

Top LNG companies 

The best LNG global companies are state-subject and controlled and owned by the respective countries' central governments. It is noticeable that Qatargas is the biggest LNG producers worldwide, and the government of Qatar has regulation and full control over it. 

However, even the private sector markets are not far behind. Publicly traded companies are making their inroads among the best. 

Here are the LNG companies: 

Total

In recent years, Total is working on LNG on priority, considering the phenomenal outlook and need of the time. The company undertook several projects that pushed it to acquire the global capacity of production. Currently, it can generate almost 10 per cent of the overall world's output. In 2020, it came at the second spot of the production of natural gas. 

The operations of the Total LNG are global and integrated. Several facilities are running globally, which are supplying natural gas to different nations. Its distribution and marketing channels help it to spread the business in various corners of the world. 

Interestingly, Total wants to expand its business and production from 40 million metric tons in 2020 to 50 million metric tons by 2025. Going by its recent performance, it seems achievable. 


Cheniere Energy 

It is America's leading LNG producer. In 2016, it exported LNG from the lower 48 states. Cheniere Energy exports natural gas to its foreign buyers from LNG facilities alongside the US Gulf. In the year 2020, Cheniere became the fourth biggest LNG supplied worldwide. Besides, it remained the second-largest LNG operator. 

The company buys natural gas in the open market to supply it to customers through third parties' pipeline facilities. Cheniere liquefies the gas before selling it to foreign clients. The selling percentage is around 85. The rest of the supply is sold to other customers at retail price. 

The contracted volumes ensure the company has enough cash flowing in its accounts. It helped in reducing its debts and expand the vision of ambitions. Between the first quarter of 2021 and the second quarter of 2022, it will be ready. 

It's long term contract strategies in selling LNG is clearly winning its gains for the company. Also, Cheniere seems a bright prospect, which is navigating comfortably in unknown waters. Plus, the US-centric opportunity is always available. 


Royal Dutch Shell 

The company has grown as the powerhouse in the LNG sectors over the years. Interestingly, it has been the pioneer in the sector and going strong. After acquiring BG in 2016 for a whopping USD 70 million, it jumped to the top position of annual production. 

Today, the company celebrates its projects in ten nations. Moreover, it has regasification plants that reconvert LNG into gas. Notably, it uses local pipeline systems to flow. 

Shell controls and exports the entire LNG facility and production part apart from supplying the gas. Interestingly, it produces natural gas from a variety of fields. It also markets the product to its potential buyers and generates massive revenues. 

The Royal Dutch Shell is eyeing several projects for the coming years in the energy sector, fueling it to remain on the top. 


Gas supply in Ghana

It is noticeable that African nations are not lagging in the production of natural gas. As per the forecast, natural gas production in Ghana will surge until 2025 on a year-on-year basis. It is subject to steady growth. The storage surpluses will increase simultaneously. Interestingly, the forecasts predict that Ghana's production would be enough to supply neighbouring countries in the coming years. 

The unprecedented approach of production of natural gas in developing nations give hopes to the energy sector. 

However, how the supply, demand and production of the gas post the recent resurgence of the COVID-19 effect will navigate to the logical conclusion. 

There are possibilities that Ghana may invest in projects that are growth-oriented in 2022. Even if one of them works well, there's no stopping it from achieving its target. 


Factors influencing natural gas prices

The most important factors remain:-

  • Coronavirus pandemicic
  • Unpredictable weather
  • Russian and Saudi Arabia price war 

The forecast largely depends on these elements. If they favour the thoughts and planning of big guns, then investors can earn good money. Brokers like 101investing are offering opportunities to invest in the natural gas market. 

As per the International Monetary Fund (IMF), the Henry Hub price may surge to $2.65 per MMBtu. However, the World Bank's prediction is even higher. It thinks that by 2030, it will increase by $4 per MMBtu. 

Conclusion: Investors have opportunities unlocking from several places for investment in natural gas. However, how it copes with coronavirus and weather remains to be seen. Meanwhile, forecasts by the IMF and the World Bank are as per great and back hopes.
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