Global Gas Glut Forecasted to Reach Multi-Decade Highs

Natural gas prices have seen a steady decline in recent months, largely attributed to an oversupply of the blue fuel following a milder-than-anticipated winter season worldwide.

The surge in liquefied natural gas (LNG) production has contributed to increased supplies and profits, prompting substantial investments in the sector. With over 150 million tons of LNG capacity currently under construction, experts are dubbing it a "record wave of expansion," as highlighted in a Morgan Stanley analysis cited by CNBC. This surge represents a significant boost to the current supply, which exceeds 400 million tonnes per year.

Morgan Stanley commodity strategists predict that the oversupply in the gas market will continue to rise in the coming years, reaching decade-high levels. This projection comes amid U.S. natural gas prices standing at $1.83 per metric million British thermal units (MMBtu), marking a 22% decrease since the start of 2024.

The warmer-than-normal winter has led to reduced demand for heating and subsequently gas in key LNG consumer nations. According to Zhu Xing Chun, head of emerging natural gas and LNG markets at S&P Global, this decline in demand is primarily due to mild winter conditions across Northern Hemisphere regions such as the US, Europe, and North Asia.

Europe, the world's largest consumer of LNG, experienced its warmest winter on record, while Japan recorded its second warmest winter in history. These temperature anomalies, coupled with higher average natural gas storage levels, have exerted downward pressure on prices since October.

Lower natural gas prices are expected to benefit countries heavily reliant on imports, such as India and Southeast Asia. India and Thailand, in particular, stand to gain the most, as imported gas constitutes a significant portion of their energy supplies. The elasticity of gas demand in India suggests that consumers will increase purchases as prices fall, while Thailand ranks among the largest per capita gas consumers among emerging market economies.

Despite the prevailing bearish price fundamentals, there are indications that demand could rise as secondary players, including China, re-enter the market due to favorable pricing. However, the Dutch hub TTF gas futures for May delivery witnessed a 2.4% decline in midday European trade, reflecting increased continental European gas supplies from Norway and forecasts for softer temperatures in early April.

As Europe approaches the end of the heating season, natural gas prices are expected to continue their downward trend, supported by factors such as Norway's consistent production, the growing role of solar power, and record end-of-winter European gas stocks.

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