Dr. Ken Rietz
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Greg Molnar is the lead author of the International Energy Agency (IEA) publication Quarterly Gas Report. The latest edition, covering Q1 of 2025, was just released and is available online. It forecasts global natural gas in detail and authoritatively. It is also huge. But Greg published a LinkedIn article summarizing the five most important points of quarterly report. In this commentary, I will touch on those five points and bring in other sources to expand on them. But first, here is a graph of the price of natural gas over several years. |
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Figure 1: NYMEX front month futures of natural gas in USD/Mbtu Let’s go over Greg’s points, one at a time. Remember that these all deal with the first quarter of 2025. First point: record high global demand, nearly 45% of which comes from Asia. The EIA agrees, through 2026, with many concurring opinions in the financial media, but not everyone. Hightower ($) disagrees, due to the rigcount being the lowest since Dec 2021. Plus, all the tariff/trade conflicts and sanctions already in Trump’s tenure seem to imply a continued use of them as a negotiation tactic, which could cause unforeseen adjustments in the price and availability of natural gas. Finally, China’s economic problems could explode without warning, and cause that 45% demand for natural gas to shrink nearly instantaneously. Note, however, that all these negative factors are hypothetical, so they do not negate the original thesis. Second point: Despite record LNG supply, European markets will remain tight. The supply of natural gas in the US will be limited by significant LNG exports to the EU and the rest of the world. The EU in particular will struggle with supply due to the discontinuation of natural gas from Russia through Ukraine. Again, the EIA agrees that as demand grows globally, LNG will be the main factor meeting that demand, with the US being the main source. Third point: A decline in European LNG imports in 2024 will increase by 25% through summer. Europe’s importing natural gas has been a political football, and LNG imports look to be the longer-term solution to that problem. But the big shock of Russia closing off natural gas to the EU happened last year and is now mostly over. Stockpiles of natural gas in the EU have been at 90% or higher for a long time now. Fourth point: Netherland’s TTF prices for natural gas will exceed the Asian spot price as Europe desperately needs more LNG for Q1–3. The two major uses of natural gas (heating and electricity generation) are both highly weather dependent, and the differences between European and Asian needs are large. But the degree to which the EU will need natural gas to supplement the mostly weather-dependent “green” (wind and solar) sources of energy is hard to predict. Fifth point: Strong growth of gas-fired generators in 2024 will moderate in 2025. This point is not as strongly supported as the other points by general market discussions. For example, Market Research Future makes a solid point that natural gas will replace the older, diesel generators because natural gas is cleaner and cheaper. The IEA also makes the same points. And even though green energy will continue to grow in the EU, a backup of reliable natural gas energy will be needed. Finally, what trading implications can be drawn from all of these forecasts, at least for the first quarter of 2025? That is clear. Higher demand and tighter supplies of natural gas make for increased prices. The factor that is harder to predict is the supply. Even in the US, where the battle cry is “Drill, baby, drill” the net increase is not clear. But overall, an increase in the price of natural gas is more likely than not. |