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Natural gas outlook 2015: Factors that affected natural gas prices.

Natural Gas Outlook 2015

Today we are going to talk about one of the most fast changing markets in 2015, the one of natural gas, a commodity that has played a fundamental role in the global economy over the last year.

In the first place it is appropriate to talk about how the industry in the US has shifted from coal to natural gas in the past year. While in 2010 we had an energy production market clearly dominated by coal, accounting for around the 44% of the total against 22% for gas, the situation in April 2015 showed that gas had already surpassed the coal by 1% of the share (31-30% for gas and coal, respectively).

Natural gas outlook 2015: Factors that affected natural gas prices

We need to look for the causes of this change, on one hand, on the creation of different new laws that favor a cleaner and more environmentally friendly production of energy; and on the other, on the low natural gas prices motivated by the rise in production of this commodity.

However, not the entire globe has experienced the same trend. In fact, the International Energy Agency (IEA), in its 2015 Medium-Term Gas Market Report, has predicted an increase in global demand for natural gas of around 2%, which is actually inferior to the 2.3% expected according to the analysis performed in 2014 by the same organization. This reduction is caused by an initial overestimation of the Asian demand in the previous year.

While for the US, as previously said, the coal is being abandoned for more eco-friendly substitutes and its market share is substituted by gas, the giant Asian market with China on the lead (the main importer and consumer of coal) is not able to adapt quickly enough to the drop of the natural gas prices. Asian countries lack a proper infrastructure for gas usage, and long term investments to profit from it are less attractive than the ones that can be put into renewable energies. In the short term, the energy demand that gas could cover is being taken away by the important and sharp price fall of oil.

We can conclude this global natural gas outlook 2015 with information about the last big consumer of gas, Europe. In this case, the main supply of foreign gas is Russian Federation through Gazprom. However, the free market with the lowering of prices is attracting other players, as is the US. Some people thought that the sanctions imposed against Russia because of the conflict in Ukraine were due to the intentions of the US to defy the domination of Russian gas in Europe. However, the only way that the US can send gas produced on American soil to Europe is through LNG (Liquefied Natural Gas) tankers. Some ports are being built, but the priority for Americans is not Europe, but other countries less developed countries as India and Japan. In any case, the share of the Russians in the European market will decrease, at least slightly, in favor of the US. This may cause a slight negative change in the natural gas price, if the sanctions against Russian Federation are not lifted.

By Chieffinancing 25.07.2016

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