High Demand Sends LNG Prices Climbing Around the World

1. Mexican Crude Production Collapses Ahead of Elections

- Providing a somber reflection on Mexico’s upstream industry before the June 2 general election, crude production by Mexico’s state oil company Pemex fell below 1.5 million b/d for the first time in over 40 years.

- April’s crude output of 1.474 million b/d represents an almost 200,000 b/d year-over-year drop, marking a new trough for the country, the lowest point since Mexico started producing from the giant Cantarell field and tapped into its prolific offshore waters in the late 1970s.

- The Lopez Obrador government forbade new hydrocarbon bidding rounds and has instructed Pemex to focus on onshore and shallow-water fields rather than investing into higher-risk projects. 

- Higher condensate production from onshore assets such as Ixachi or Quesqui offset some of the declines in total supply figures, however not enough to halt the tide of legacy declines.  

2. Could AI Gas Demand Lift US Natural Gas Prices?

- US natural gas prices are set for structural upside over the next 20 years as incremental demand from data centres and AI has prompted a gas generation renaissance. 

- According to WoodMackenzie, the growth in US natural gas demand could amount to as much as 30 BCf/d, pushing Henry Hub futures above $4 per mmBtu by 2035 and closer to $6 per mmBtu by 2045.

- Electricity demand from data centers currently adds up to 11 GW of generation, but this should more than triple to 42 GW by 2030, with surging demand lifting the US nationwide queue for new grid connection projects to 2,600 GW last year.

- Should the US natural gas bonanza as rapidly as it did in 2023-2024, Asian LNG buyers might reconsider their pricing strategies – right now,  Henry Hub-linked contract prices are still cheaper than oil-linked term deals with a 12% Brent slope. 

3. Heatwaves Send Asian LNG Soaring, Concurrently Pushing Europe Higher

- European LNG prices have risen to their highest this year as buyers across the continent now need to compete with Asia, triggering a global price rally that sent JKM to $11.5 per mmBtu this week. 

- Heatwaves across Asia have greatly boosted prompt buying of available spot cargoes, with Indian utilities scrambling to source June-arrival cargoes whilst Japan mulled buying more of Sakhalin volumes from Russia’s Far East.

- As a consequence, European buyers face difficulty clinching spot deals as most of trading activity is now centered around the Asian continent, albeit gas inventories remain counterseasonally robust across Europe, at 67.7% by March 23.

- Maintenance at Norway’s offshore gas field as well as the Kollsnes gas processing plant have curbed Norwegian pipeline offtake, however so far LNG prices reacted much more swiftly than the Dutch TTF futures contract. 

4. As Wheat Prices Soar Again, Food Inflation Risks Resurface

- Agriculture might see a flurry of panic as key crops suffer from slackening production, with wheat prices rising by 25% in the past two months, orange juice hitting all-time highs, and rice prices nearing 15-year maximums. 

- Russia’s deteriorating wheat forecast has had a material impact on 2024-2025 prices, with cold weather and frosts severely damaging wheat crops in southern regions, whilst France and Italy were battered by heavy rainfall and storms. 

- Following a wheat harvest that exceeded 90 million tonnes last year, Russia’s outlook for this year’s production was already lowered to 83-84 million tonnes and could go even lower, triggering pricing spikes in wheat.

- The Bloomberg Agriculture index shows that the world’s nine major crops have recouped all their 2024 losses and are the highest so far this year, with the FAO Food Price Index (currently at 119.1 points) expected to edge higher into the summer months. 

5. Wary of Power Shortages, Australia Softens Coal Decommissioning Mandates

- Australia’s electricity generation concerns have become so acute that the country’s largest coal-fired power plant, the 2.9 GW Eraring power station will see its closure delayed by two years, until August 2027. 

- Power coming from Eraring accounts for a quarter of power demand in New South Wales, and the expedited pace of decommissioning has led the grid operator AERO to issue power shortage warnings for 2025-2027.

- The plant will have to retire in full by April 2029, but the operator Origin Energy, up 21% so far this year, will receive a compensation of $150 million per year just for keeping the capacity online. 

- Australia is forced to reconsider its commitments as investment into new renewable capacity has slowed down substantially, falling 55% year-over-year in 2023 for large-scale solar and wind projects.  

6. Tesla’s Growth Ambition Runs Into Severe Headwinds

- The world’s second-largest EV maker Tesla (NASDAQ:TSLA) has left out its erstwhile goal of delivering 20 million vehicles a year by 2030 from its 2023 impact report, having reiterated that goal in all previous reports.

- Tesla has also axed its commitment to producing an even cheaper all-new model that would cost $25,000, insisting rather that autonomous driving technology would be its main source of growth over the next decade.

- The slowdown in EV sales growth has had a very negative impact on Tesla, seeing its stock fall 30% in 2024 so far, as the company posted its first year-on-year sales drop in Q1 2024 and laid off over 10% of its staff. 

- Tesla’s rival BYD (SHE:002594) posted similarly disappointing Q1 results as its net profit dropped by 47% quarter-on-quarter and its revenue growth slowed down to the lowest in four years, though it remained ahead of the US carmaker.  

7. Copper’s Record Price Spike Gives Way to Widespread Profit-Taking

- Copper prices soared to an all-time high of $11,104 per metric tonne on April 20, only to produce one of the most spectacular nosedives in recent history, slumping back to $10,300/mt.

- Following a short squeeze first in the Comex and then in the LME exchanges, interest towards copper cooled notably as traders took profit and exited their positions this week. 

- The copper price surge sent shockwaves across the metals markets with Chinese sales orders falling 20-30% in May as smelters and refiners have difficulty passing on the higher costs onto customers, amidst a weaker growth outlook.

- As Chinese copper refiners are expected to cut runs to just 66% of available capacity this month, the physical market’s reaction might indicate that the price rally has ran ahead of consumption and should dissipate soon.