Flexible trade forms promote continuous innovation of natural gas pricing mechanism

In September,the price of natural gas in the United States dropped significantly from the high point,and the November contract of HenryHub natural gas futures in the Chicago Mercantile Exchange fell from the high point of US$3.002/million Btu on September 4 to US$2.6/million Btu on September 22,which is in line with the fundamentals of the slowing economic recovery in Europe and the United States.Similarly,although the domestic natural gas price rebounded from April to September,it has been lower than the level before the epidemic.

The epidemic has led to a decline in natural gas consumption

In 2020,the global energy market suffered a severe setback.The outbreak of the epidemic led to a sharp decline in energy consumption such as crude oil and natural gas at the end of the first quarter and the second quarter.Affected by the epidemic and the warm winter in the northern hemisphere,the global natural gas consumption will have the largest decline in history.It is expected that the global natural gas consumption will fall by 4%to about 150 billion cubic meters in the whole year,and will affect all regions and related industries in the world.

Since 2020,due to the milder climate in the northern hemisphere than in previous years,the consumption of major natural gas markets in the world has begun to decline before the outbreak of the epidemic.IEA's report"Global Energy Review 2020-Impact of the COVID-19 Crisis on Global Energy Demand and Carbon Dioxide Emissions"released in April 2020 showed that in the first quarter,the demand for natural gas in Europe fell 2.6%year on year,while the demand for natural gas in the United States fell 4.5%year on year due to the sharp decline in residential and commercial demand.The demand of mature natural gas market in Asia also decreased.The LNG import volume in Japan fell by 3%in the first quarter,and the domestic natural gas sales volume in South Korea fell by 2.5%from January to February,while the natural gas demand in China was basically flat.

Affected by the global spread of the epidemic,as of the beginning of June 2020,the major natural gas markets in the world have experienced varying degrees of demand decline or growth slowdown.In its 2020 Natural Gas Report released in June,IEA predicted that the global natural gas demand in 2020 would decline by 4%year-on-year,about 150 billion cubic meters.The decline will be twice as large as that of the financial crisis in 2009,and the natural gas consumption will fall by 2%in that year.It is expected that natural gas consumption in all regions and sectors of the world will decline throughout 2020,mainly in mature markets and power sectors.

Although the global economy recovered from the slump in the second quarter in the third quarter,the slope of recovery slowed in September.In September,after many countries tried to return to school and work,the epidemic situation in Europe,the United States and the Middle East and other regions increased again,and some countries restarted the blockade measures,which means that the global economic recovery will slow down at the end of the third quarter and the fourth quarter,and even reach the bottom again.Israel announced that in order to curb the spread of COVID-19 virus,it will again implement strict restrictions on September 18,lasting at least three weeks.Whether to extend them will depend on the specific circumstances.

Judging from Citi's economic surprise index,the economic recovery momentum of the euro zone and the United States is slowing down.The Citigroup Economic Surprise Index in the euro area continued to fall after rising to more than 200 points in early August,and fell sharply to 48.6 points on September 21;The Citigroup Economic Surprise Index of the United States also rose to 253.1 points in mid-August,and fell back to 166.1 points on September 21.

From the perspective of natural gas consumption structure,natural gas in the United States is mainly consumed in five industries:industry accounts for 35%,power generation accounts for 34%,civil use accounts for 16%,commerce accounts for 12%,and transportation accounts for 3%.However,natural gas for power generation in Japan and Russia accounts for more than 60%,so on the whole,even if winter comes,it is not certain that the increase of civil(heating)natural gas consumption can offset the reduction of natural gas for power generation and supply.

From the perspective of climate,the latest outlook report released by the National Oceanic and Atmospheric Administration of the United States shows that the atmospheric conditions also generally indicate that La Nina phenomenon has occurred.La Nina phenomenon means that winter is"cold winter".However,whether global warming and La Nina phenomenon will lead to"cold winter"this year is still unknown.

Natural gas supply has not been reduced correspondingly

At the beginning of 2020,natural gas supply did not adjust due to the decline in consumption,resulting in a substantial increase in natural gas inventory.According to IEA statistics,by the end of March 2020,the reserves of underground natural gas storage in the United States had increased by 77%over 2019,17%higher than the average level in recent five years;Europe has increased by 40%,80%higher than the average level in recent five years.

According to the prediction of relevant institutions,in September 2020,the average daily output of the United States,Canada,Norway,Australia and Russia will reach 16.9 million barrels/day,5 million barrels/day,2 million barrels/day,0.5 million barrels/day and 9.7 million barrels/day respectively,a total of 34.1 million barrels/day,which is only a drop in consumption compared with the same period last year.

Under the circumstances of declining consumption and relatively stable output,the US natural gas inventory has continuously reached record highs.EIA natural gas report shows that the EIA natural gas inventory of the United States increased by 89 billion cubic feet in the week to September 11,higher than the market expectation of 79 billion cubic feet and the previous value of 70 billion cubic feet.The total natural gas inventory in the United States reached 3614 billion cubic feet,an increase of 535 billion cubic feet over the same period last year,and 421 billion cubic feet higher than the five-year average.

Continuous innovation of natural gas pricing mechanism

The price of natural gas in different regions of the world has always been different.In recent years,the LNG supply has increased sharply,while the demand is relatively weak,the market supply and demand fundamentals continue to be loose,the natural gas prices in all regions of the world are gradually converging,and the natural gas pricing mechanism is becoming increasingly diversified.

Traditionally,natural gas is mainly transported by pipeline and monopolized by a few regional suppliers.Oil price is the main reference of natural gas price,thus forming a natural gas pricing model linked to oil price.With the surplus of LNG supply capacity and the flexibility and diversity of trade forms,the buyer has a diversified choice of linking index.Since 2019,a variety of new LNG pricing methods have emerged in the global LNG market.According to statistics,in 2019,about 45%of newly signed LNG purchase and sales contracts were linked to the oil price,25%to the HenryHub price index of the United States,20%to the mixed pricing,and about 5%to the Asian JKM spot price index or the European NBP price index.

HenryHub natural gas futures have gradually become a new pricing option for many traders.HenryHub natural gas futures allow market participants to conduct a large number of hedging activities to manage risks in the volatile natural gas prices.The average daily trading volume(ADV)of HenryHub futures contracts reached the highest level in the first quarter of 2020,and the non-US trading time(from 5:00 p.m.to 7:00 a.m.Central Time)showed an obvious upward trend.