Fitch Ratings has trimmed its natural gas price forecasts both for the U.S. and European benchmarks on the back of “very large” market oversupply, Kallanish Energy reports.
“Current prices in Europe and Asia rarely cover the half-cycle cash costs – that include variable operating costs and transport to Europe – of natural gas and LNG suppliers, including Gazprom and U.S. producers, and are therefore unsustainable,” it said in a report last week.
The credit ratings agency assume the Dutch TTF and UK NBP gas prices in Europe will gradually recover to $5.5 per thousand cubic feet (Mcf) over three to five years. This broadly corresponds to the full-cycle costs of U.S. producers, including shipping to Europe and capex, Fitch said.
In the long-term the U.S. Henry Hub gas price is expected to recover to $2.5/Mcf.
But in the short-term, in the next two years, gas prices will remain low because of weak LNG demand in China, high volumes of storage in Europe and new LNG capacity.
Under a base case, the 2020’s projection for Henry Hub gas price was trimmed by 65 cents to $1.85/Mcf. The new forecasts are of $2.1/Mcf in 2021 and $2.25/Mcf in 2022.
Prices could be lower, at $1.65/Mcf this year under a stress case. This would put the long-term Henry Hub price at $2.25/Mcf.
The forecast for European gas prices have been cut by $2/Mcf this year to average $3.5/Mcf. Fitch expects these prices to be around $4.5/Mcf next year and $5/Mcf in 2022. A stress case scenario could set European prices at an average of $3/Mcf this year.
This post appeared first on Kallanish Energy News.