OPINION: The price of natural gas in the US has followed oil and come crashing down in recent days, but power prices in Europe and Asia remain strong and forward prospects for the sector are good.

The US benchmark, Henry Hub Natural Gas Front Month Futures, plunged 7% early this week to stand at $3.75 on 7 December, down from an October peak of $6.47.

The slump was largely down to predictions of milder weather over December rather than concerns about the global impact of the Omicron coronavirus variant that has hit crude values so hard.

The price of LNG for January into North-East Asia was down slightly at $34.60 per million British thermal units, but that was largely attributed to lower demand as the Chinese government allowed more coal burning in power stations to avoid an electricity squeeze.

For the moment, the fall in US gas prices will take the pressure off exporters, which are under pressure from Washington to curb shipments to increase local supplies and restrain power price increases.

High-profile Democratic senator Elizabeth Warren sent a letter to ExxonMobil, ConocoPhillips and nine other gas producers last month accusing them of “corporate greed and profiteering”.

She received a testy response from the Marcellus Shale Coalition, which blamed price swings on a variety of factors, including political and regulatory changes.

American LNG exports have been booming to record highs. They reached 6.1 million tonnes last month compared with 5.96 million tonnes in October, according to commodity consultant Kpler.

Many of the cargoes are going to the Far East, with China increasing its overall LNG imports by 13 million tonnes this year, UK-based energy consultancy Wood Mackenzie reported.

China is now deemed priced out of the market and is expected to raise its reliance on Russian piped gas, but South Korea and Japan are still strong buyers, according to Norwegian consultancy Rystad Energy.

Europe increased its LNG global imports to 6.29 million tonnes last month, up from 5.96 million tonnes in October, amid expectations of a cold winter and concerns about the reliability of Russian gas supplies.

Storage levels have been falling in Europe, and Rystad warns of the risk of “drastic depletion” of storage to around 12% of notional capacity by April 2022.

Driven by a determination in Asia to cut carbon emissions post-COP26 climate talks, WoodMac sees a rush of new LNG export projects getting the green light.

“Over the next 12 months we expect several low-cost projects to move towards sanction, including Cheniere Energy’s Corpus Christi Stage 3 and Venture Global’s Plaquemines project in the US, North Field South in Qatar and Arctic LNG 1 in Russia,” it argued in a report last week.

WoodMac predicted that the stronger-than-expected LNG prices of 2021 will soften by the back end of the northern hemisphere winter, but remain volatile in Europe and strong in Asia for the coming 12 months.

There are words of warning about the need to curb their own Scope 1 and 2 carbon emissions, but for gas producers and exporters, optimism is in the air for 2022.

(This is an Upstream Opinion article.)

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