Natural gas market to boom, but comes with volatility

As liquefied natural gas (LNG) plays an increasingly significant role in the transition to a low-carbon world, the market will become more volatile and risky, believes audit consultancy PwC’s strategy consulting business Strategy&.

In a new analysis titled ‘Navigating the transformation of the gas market’, Strategy& found that the “thirst” for natural gas would continue growing.

“Although some slowdown in demand growth is expected as global economic conditions soften, particularly in China, LNG orders are not going to decline anytime soon,” noted the report.

It also highlighted Africa and Asia as areas where the biggest consumption gains could be expected to come from.

Further, the analysis suggested that gas prices would be influenced by oil prices for several years. “If oil prices stay low, so will gas prices. Existing contracts linked to oil will have to be worked through first but, even if oil and gas are delinked after these contracts are concluded, inexpensive oil could psychologically have a dampening effect on all energy prices.”

Meanwhile, Strategy& also warned that the global LNG market was about to become inundated with new suppliers, with a supply glut forecast to continue, which would see oversupply forcing sellers to seek alternative markets and share more risk with traders hoping to exploit arbitrage opportunities. Some producers would likely cut oil prices to defend market share against LNG imports.

“LNG is a buyer’s market right now, especially with a glut of natural gas on the market. Buyers must negotiate the best deal possible and take advantage of lower prices to get gas into South Africa at the lowest prices seen in many years,” said PwC Africa oil & gas industry leader Chris Bredenhann, commenting on the analysis,

He added that the Department of Energy recently issued a Request for Information regarding possible developments in the country’s proposed gas-to-power programme. 

“It is expected that this initiative will not only establish the delivery of the 3 726 MW of electricity capacity set out in the Ministerial Determinations, but will also act as a catalyst to the development of a natural gas industry in South Africa and provide the gas infrastructure which will be required when we have our own indigenous gas,” said Bredenhann.

He noted that in Africa, if the Mozambique LNG developments were to go ahead, the players in that sector would have to carefully look at the costs and defend their positions with buyers of their gas and renegotiations could have a detrimental impact.