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Morgan Stanley warns of further

gas, LNG price volatility risk

GLOBAL INVESTMENT bank Morgan Stanley warned consumption, but that in South Korea and Bra-
this week that low inventories and the imminent zil, transitory factors such as hot weather and
arrival of the winter heating season leave room outages among other energy sources had at least
for further upside volatility for gas and LNG a partial impact.
prices. In Southeast Asia, the bank has observed
This comes after gas and LNG benchmarks some switching to alternative fuels such as
have surged to multi-year highs as a result of fuel oil and coal beginning to occur. This
rebounding demand and constrained supply. relates to concerns that others have raised in
In particular, Asian LNG and EU gas prices the past over what will happen if the decar- In Southeast
have rallied tenfold to near $20 per million bonisation of LNG becomes too costly, caus-
British thermal units ($553.20 per 1,000 cubic ing developing countries in particular to turn Asia, the bank
metres), the investment bank noted. They have to cheaper alternatives at the expense of the
set new seasonal and all-time price records in the energy transition. has observed
process. On the supply side, Morgan Stanley said
US gas prices remain largely decoupled from export utilisation rates have remained weak, some switching
the rest of the world, but Morgan Stanley said at around 82% on average in July and August to alternative
that Henry Hub benchmark prices have none- compared with 90% normally. Supply from
theless risen threefold to around $5 per mmBtu Qatar averaged 6.5mn tonnes over that period, fuels such as
($138.30 per 1,000 cubic metres). The supply-de- down 5% year on year, the bank noted, also
mand picture for each market is similar, with low identifying a lack of recent exports from Peru fuel oil and coal
inventories, constrained near-term supply and LNG and upstream issues in Nigeria and Trin-
growing demand, according to the investment idad and Tobago. Looking ahead, it warned of beginning to
bank. maintenance in the US and Australia that could occur.
Looking ahead, Morgan Stanley sees poten- continue to weigh on global export capacity
tial for upside volatility, especially in the event of 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.™

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