The price of liquefied natural gas (LNG) could jump to as high as $100 per million British thermal units (MMBtu) if particularly frigid winter weather combines with the tight markets that have sent natural gas prices surging, Citigroup said on Thursday.
“Global natural gas prices could continue to go parabolic in the coming weeks and months,” Citi analysts wrote in a note carried by Bloomberg.
“Strong demand and a lack of supply response have sharply tightened the market. Any surprise demand surge or supply disruptions could propel price further upward,” the investment bank notes.
LNG prices for November delivery to Asia are currently at around $25/MMBtu—a record high for this time of the year. In Europe, the surge in gas prices by 280 percent so far this year has also pushed the European benchmark at the TTF hub to some $25/MMBtu.
In its note, Citi more than doubled its base cases for the average prices for Asia’s JKM price of LNG and for the TTF European benchmark in the fourth quarter.
The new base case for Asia’s gas price is now $28.80/MMBtu for the fourth quarter, up from the previous $13.90/MMBtu. Citi’s new base case for the European benchmark price is $27.70/MMBtu, up from $12.90/MMBtu.
The U.S. natural gas benchmark, the Henry Hub, will average $6/MMBtu in the fourth quarter, according to Citi’s new base case, compared to $3.90/MMBtu in the previous base case.
Citi’s new estimates for Q4 are slightly higher than the current prices of gas and LNG in all three regions.
However, in case of a severely cold winter, prices could spike and LNG cargoes could trade for $100/MMBtu at times, according to the bank.
Citi, like other analysts and OPEC, believes that the surge in natural gas prices will boost demand for other fuels as utilities would look to switch to alternatives. The ripple effect of this gas-to-other fuels-switch is likely to be wider than initial forecasts had it, according to Citi.
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By Tsvetana Paraskova for Oilprice.com
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Btu British thermal unit about 293kWh energy, 1kg LNG same cooled CNG has about 15kWh more than 1kg kerosene or gasoline