In many markets, natural gas will push coal out of energy industry, in Germany it will even partially replace nuclear power plants that will be soon put out of operation. Predictions of the biggest importer of natural gas globally – China – are rising for the following years as well. According to International Energy Agency, the consumption of natural gas will also be notably pushed by Middle East. Yet the analysts do not bet on this commodity’s price increase for this year. For example, experts on gas business FX Empire see the supply as oversaturated and advise patience and waiting for the right time for reserves sales.
Demand and supply are the main factors that influence almost everything in economics, but there are also other factors that are reflected in the price of gas. They include import and export, reserves, economical growth, cycle of seasons (winter, summer) and fuel prices.
China is the biggest importer of natural gas. In the following figure we can see its estimated consumption for the following years. We should of course think twice about these numbers, since consumption heavily depends on the situation of economy and these numbers may be reached only in the time of economic expansion. Further development will tell us more, because even though China still has high GDP, its growth is gradually slowing down. In this case, the natural gas consumption would be enormous and according to Gulf Brokers analysis this could increase natural gas prices in the future, as opposed to the short-term predictions.
Even though China represents the highest consumption growth, others are – according to estimates – slowly joining too. Increased consumption means increased demand and if the production doesn’t “catch up”, then it should be reflected in prices. From the sector point of view, industrial sector is one of the biggest consumers.
All of this is valid only with the assumption, that the global market situation will be ideal and economy will be “running smoothly” and with a full throttle. Not everyone grows economically the same way as USA do, every country has to deal with certain risks, which may also influence these numbers in the future. The list of biggest producers includes Russia (owning about 25 percent of world reserves), Iran, and Qatar. USA have been, in the last years, producing only in the amounts that were able to cover their own consumption. Egypt is also one of the notable exporters and in the recent days Ethiopia has declared its plans to start exporting natural gas from 2021.
Gulf Brokers points out one more thing to remember – natural gas is a seasonal commodity. This fact means that it is significantly influenced by price fluctuation, especially during winter or summer. Even though gas prices have the highest volatility during colder seasons, which enables us to see high price swings, it is certainly not the only determining factor.
Source: Own adaptation – Tradingview
In this graph we can see that the price deviations are mostly notable in the time before winter and just after winter. This means that each year (even though it is not a rule) market volatility increases during September and October and lasts till February or March. This is logical, in winter demand grows significantly which almost always results in price growth.
Mahmoud Hamdy Abo Hadima
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