European natural gas prices, already at their lowest since 2009, will drop further over the next five years as fuel delivered by tanker from the U.S. will add to record Russian and Norwegian supplies, Societe Generale SA said.
Front-month gas on the National Balancing Point hub in the U.K., Europe’s biggest market, will decline more than previously expected every year through 2020, the bank said in an e-mailed report Monday, cutting its forecast for 2016 prices by 9.1 percent. Europe will remain a “dumping” ground for excess liquefied natural gas, while demand will be subdued, it said.
“With Brent still below $50 a barrel, record pipe gas supply coming from Norway and Russia and more to come thanks to LNG, high storage levels, above-seasonal temperatures and little demand growth, we have revised down our forecast,” Thierry Bros, European gas and LNG analyst at Societe Generale in Paris, said in the note.
LNG tankers are heading to Europe because the continent’s liquid hubs can absorb supply not needed in Asia, the biggest market for the super-chilled fuel. Europe’s LNG imports will likely increase in the next five years after a 23 percent jump in the year through October as plants start from Australia to the U.S. to Russia.
The gas contract for next-month delivery will probably trade at 43 pence a therm ($6.7 a million British thermal units) this year, down from a forecast for 44 pence, Societe Generale said. The 2016 outlook was cut to 40 pence from 44 pence, it said. The price is seen at 41 pence through 2019 before edging up to 43 pence in 2020.
Front-month gas fell 1 percent today to 39.05 pence a therm on the ICE Futures Europe exchange, the lowest level for the time of year since 2009. It has lost 29 percent over the past year.
LNG supply will start to expand more than 6 percent a year from 2016, Societe Generale said. That’ll be possible as production starts in the U.S., where five LNG plants are under construction to produce 54 million metric tons of LNG a year, or about the same as Europe’s LNG needs. Decisions on new plants that would boost supply before 2020 are unlikely “any time soon,” the bank said.
Reduction in Dutch gas production after earthquakes caused by extraction allowed Russia to pump record volumes to Europe, the bank said. Russia probably won’t engage in a price war, keeping the floor of 38 pence a therm, Bros said.