Page 6 - MEOG Week 38 2021

MEOG PIPELINES & TRANSPORT MEOG

Morgan Stanley warns of further

gas, LNG price volatility risk

GAS INVESTMENT bank Morgan Stanley warned consumption, but that in South Korea and Brazil,
this week that low inventories and the imminent transitory factors such as hot weather and out-
arrival of the winter heating season leave room ages among other energy sources had at least a
for further upside volatility for gas and LNG partial impact.
prices. In Southeast Asia, the bank has observed
This comes after gas and LNG benchmarks some switching to alternative fuels such as fuel
have surged to multi-year highs as a result of oil and coal beginning to occur.
rebounding demand and constrained supply. In This relates to concerns that others have
particular, Asian LNG and EU gas prices have raised in the past over what will happen if the
rallied tenfold to near $20 per million British decarbonisation of LNG becomes too costly,
thermal units ($553.20 per 1,000 cubic metres), causing developing countries in particular to
the investment bank noted. They have set turn to cheaper alternatives at the expense of the
new seasonal and all-time price records in the energy transition.
process. On the supply side, Morgan Stanley said
US gas prices remain largely decoupled from export utilisation rates have remained weak, at
the rest of the world, but Morgan Stanley said around 82% on average in July and August com-
that Henry Hub benchmark prices have none- pared with 90% normally.
theless risen threefold to around $5 per mmBtu Supply from Qatar averaged 6.5mn tonnes
($138.30 per 1,000 cubic metres). over that period, down 5% year on year, the bank
The supply-demand picture for each market noted, also identifying a lack of recent exports
is similar, with low inventories, constrained near- from Peru LNG and upstream issues in Nige-
term supply and growing demand, according to ria and Trinidad and Tobago. Looking ahead, it
the investment bank. warned of maintenance in the US and Australia
Looking ahead, Morgan Stanley sees poten- that could continue to weigh on global export
tial for upside volatility, especially in the event of capacity utilisation.
colder-than-normal weather or further disrup- Morgan Stanley said it expected prices to
tions to supply. “re-anchor” with fundamental drivers such as
China, South Korea and Brazil led the rise supply costs and demand erosion thresholds by
in LNG demand in July and August, Morgan mid-2022. It continues to anticipate a multi-year
Stanley said. It noted that Chinese demand upcycle until around 2025, though, as demand
was underpinned by structural growth in continues to outpace supply.™

P6 www. NEWSBASE .com Week 38 22•September•2021