OPIS Insights

Watch: Barron’s Senior Energy Writer Laura Sanicola and OPIS Pricipal Analyst for Natural Gas Luka Powell discuss what’s ahead for energy this week.

Watch this week’s episode for insights into the latest about the current disruptions in the global gas market where recent conflicts and weather events have taken approximately a quarter of global LNG offline, including impacts from the Iran war and Tropical Cyclone Narelle affecting Australian LNG plants.

Transcript:

LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here today with Luka Powell, Principal Natural Gas Analyst at OPIS. Luka, thanks for joining me.

LUKA POWELL: Thanks for having me. Good morning.

SANICOLA: Yeah. So it’s great to have a gas expert on here because, obviously, gas has been sort of the most salient and visible disruption from the Iran war despite most of the headlines circulating around oil.

I think well, I just went to CERAWeek last week, and there’s just a lot of questions about, you know, how much supply is offline right now, and is the market pricing in?

What exactly the market’s pricing in? Because we’re in this awkward shoulder season where we don’t need you know, countries don’t need to restock gas right now, but they will. And it’s just not clear what elements of the disruption are being priced in. So, you know, help us figure that out.

POWELL: Sure. Yeah. Well, there’s it’s been a really disrupted time in a very disrupted market. And even the last twenty four hours, we’ve got more additional, I guess, supply concerns coming out of Australia with the tropical cyclone Narelle hitting Western Australia where we’ve got a number of LNG plants.

So it’s affecting Chevron and Woodside plants over there which have around or produce around eight percent of global LNG. So seeing that offline with workers unable to get to the plants and, yeah, like, crews awaiting safer conditions before they can get back online is disrupting an already very disruptive place. So we had just yesterday Japan’s industry minister asking Australia for more capacity. And then, obviously, we’ve had to shut some stuff down this weekend.

But we need to see what the material impact of that is. Right now, it’s just weather conditions, but hopefully, it should get back online over the next couple of days. So that’s seeing some reaction in the in the markets for European and Asian prices at least. But it within the wider context, this offline is resulting in, think, around a quarter of global LNG offline.

So that’s seeing some really significant price reactions.

But in terms of what we’re factoring in, like you said, it’s the shoulder season. We’ve got milder weather at least here in Europe, but we’re gonna have to start refilling and potentially at a larger rate than normal to offset that Qatari losses.

So with that in mind, we’re gonna have to see elevated prices for for the foreseeable.

And again, the main question is when does the war end? When will we see a normal resumption of of trade flows?

We can’t predict that. But what we can see is there’s I guess an energy infrastructure ceasefire kind of happening right now and commitments to not target energy infrastructure. And as a result, that is providing a little bit of respite for the markets for the meantime. So yeah. And even when we do see that resumption of normality, if we can call it that, it’s a question of whether people are comfortable going down the Strait of Hormuz again. Like it’s a If it opens, sure but at what point will companies be willing to get back out there?

SANICOLA: And of course, some of the most price sensitive buyers of natural gas are the most impacted, you know, the the Southeast Asian countries that source their gas from Qatar, and and these were the countries that were really expected to drive global growth.

And and there seems to be this big looming question about, you know, it makes sense if they wanna continue to use gas as a resource to sign pricier contracts with the US. But as I mentioned, they’re price sensitive. They’ve got coal. They’ve got other ways to other ways to generate electricity. So, you know, how should we think be we’d be thinking about Asian demand in this context?

POWELL: Yeah. I think that probably one of the biggest lessons from this crisis is that diversification for everyone is no longer optional. It’s absolutely crucial. And that’s been sharpening by interest in alternative off take sources, like you said, from the US, from Canada, from Australia.

But as you said, like South Asian markets like Bangladesh, India, Pakistan, they rely on Qatar the most for roughly a quarter of their total demand.

And they’re the least able to absorb these sustained price hikes. So I think Bangladesh is currently procuring spot cargoes at extremely elevated prices around twenty three and twenty eight dollars per million BTU while simultaneously maintaining gas rationing. This isn’t sustainable. I don’t know at what point or what is the ceiling for to lock in, I don’t know, longer term price agreements, but this isn’t sustainable. And as a result, you know, we’re seeing a visible rise in coal consumption across Bangladesh, other parts of Southeast Asia, and Japan actually has also been signaling a potential return to coal switching if these disruptions persist.

SANICOLA: All right. Well, thanks so much, Luka, and thanks everyone for joining us. We’ll see you next week.