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Omar Shaban Ismail · Sawa News Agency · 2020
An opinion column by Omar Shaban for Sawa News Agency predicting that natural gas would be the second commodity after oil whose price falls below zero in the Covid-19 crisis, because the gas market lacks the organisation and coordination of the oil market and producers kept pumping until European storage was nearly full. He warns that producing countries face a harsh economic crisis unless they cut output, with deeper budget deficits, halted infrastructure projects and cuts to social services and international aid.
Omar Shaban, June 2020: natural gas is heading for a price collapse sharper than oil's, and producers face a crisis unless they cut output.
Natural gas is expected to be the second commodity whose selling price collapses below zero, as happened with oil last April. The collapse in the gas market is expected to be sharper than in oil, because the gas market lacks the organisation and coordination that exist in the oil market.
Oil prices collapsed sharply below zero last April because of the steep fall in demand and storage filling up, as the coronavirus crisis brought the world economy to a near-complete halt. The world's major oil producers managed to overcome the sharp collapse in prices by agreeing among themselves to ration production and reduce supply on the market, which helped bring prices back to their level before the collapse.
The world natural gas market is worth $600 billion. Despite the near-complete halt of the world economy, gas-producing countries have kept producing at the same rates, bringing stored gas reserves in Europe and Britain, among the largest consuming markets, to 75 percent, against an average strategic storage of 45 percent, which is the safety threshold. European reserve storage is expected to be completely full, at 100 percent, in August/September, a period that coincides with the fall in gas consumption. At that point gas-producing countries will find no one to buy from them. Many gas-consuming countries, including the United States and Malaysia, have in effect cancelled shipments intended for this summer. Russian gas supplies to Europe have fallen noticeably in recent months.
Gas-producing countries are heading fast toward a harsh economic crisis unless they immediately begin cutting the quantities produced from their wells to keep supply and demand in balance. Budget deficits will deepen in countries that rely on gas sales as their main source of revenue. Many infrastructure projects will stop, and the budgets allocated to social services, education, health and international aid will be victims of this crisis. Spending on arms will fall, which is good in itself. Even if the world succeeds in limiting the spread of the coronavirus pandemic, the repercussions of the coronavirus crisis will remain for several years to come.
Topic: International Economy — natural gas · energy prices · Covid-19 crisis — Text © Sawa News Agency — archived here with attribution to the source. — Original source