Natural Gas in 2022
After a spectacular recovery that has positioned the oil sector as one of the top performers in 2021, the oil sector has been hogging the investment spotlight. On the other hand, natural gas bulls have been having a great time. Natural gas traded at its highest levels since 2014, outpacing oil and many other commodities.
Due to solid demand, natural gas prices have increased by 20% to $4.19/MMBtu since the beginning of the year.
Natural gas prices have risen nearly 10% in the last few days after updated weather forecasts predicted freezing temperatures in the northeast for the rest of January. The prediction follows winter storms that hit the east coast over the weekend. It drove Algonquin city-gate nat gas prices as high as $24/MMBtu. Due to limited access to domestic gas supplies, many New England states have turned to burn oil to keep grids operational during inclement weather.
Low temperatures and high natural gas prices benefit majors such as Royal Dutch Shell (NYSE: RDS.A) and BP Plc. (NYSE: BP), which produces liquified natural gas in Trinidad and sells it in New England. Meanwhile, AnteroCorp. (NYSE: AR) was recently upgraded to buy at BMO, with shares expected to rise 50% due to a discounted valuation and increasing natural gas prices. At the same time, Chesapeake (NASDAQ: CHK) was recently initiated buy at BAML, with a 30% upside.
Wood Mackenzie’s Global Gas and LNG 2022 report are now available. Here are some of its intriguing forecasts.
Prices to Fall
On Tuesday, European natural gas prices reached a new high after a Russian gas pipeline to Germany switched flows to the east. US ships carrying liquefied natural gas (LNG) destined for the European market are diverting to Asia.
Westward gas flows through the 2,607mile-long Yamal-Europe pipeline, one of Russia’s main routes to Europe, have been gradually declining since but have recently reversed direction, a move the Kremlin claims has no political implications.
The Nord Stream project seeks to ensure a consistent supply of Russian natural gas to central Europe. The Nord Stream company, which Gazprom owns, would connect Russia and Germany via pipelines running through the Baltic Sea. Several EU member states have objected to the channel, arguing that it is detrimental to the organization’s interests.
According to Woodmac, European storage inventories will fall below 15 billion cubic meters (BCM) by the end of March, a record low, based on current Russian export levels and normal weather conditions. Global gas demand will remain resilient.
According to Woodmac, natural gas demand is likely to remain resilient in the short term, with signs of demand destruction so far limited.
The prospects in the European market are less promising. Gas demand in industry and power down 4% since the summer compared to the previous five years.