It’s been a wild year for commodity markets, marked by despair last spring as the world ground to a halt and followed more recently by exuberance. Nowhere has the bullish feeling been more evident than the usually staid market for liquefied natural gas: February futures for Asian gas hit nearly $20 per million British thermal units last week according to data from Refinitiv. As recently as mid-December, they were only trading around $8 per MMBtu.
Unfortunately for gas producers, today’s prices aren’t sustainable and the longer-term supply picture is bearish. Supply stoppages combined with the coldest winter in Asia in decades are a perfect market for those gas producers who still have capacity to supply spot shipments—including U.S. firms like Cheniere. But futures are already pricing in warmer weather a few months out: the April contract is currently trading around $7 per MMBtu.
Further out, Chinese demand is still the swing factor—as it is for most industrial commodities. Here the news is bullish, but perhaps less so than some LNG vendors might hope. Chinese demand continues to expand robustly, and China continues to consume far more gas than it produces. The bad news is that the growth of