After last year’s coronavirus lockdowns sent liquefied natural gas (LNG) prices plunging below $US2 per million British thermal units, cargoes for delivery in Asia have climbed back above $US13, the highest for this time of the year since 2013. Australia’s big natural gas exporters are poised to cash in on the strong demand across northern Asia that has propelled the prices of the fossil fuel out of their COVID slump. Gas markets have been rallying after a colder and longer Northern Hemisphere winter increased demand for heating and drained stockpiles, while Asia’s accelerating economic recovery and easing of travel restrictions support higher energy consumption. Oil and gas companies are also facing escalating pressure on climate change and the prospect of demand for their commodities falling faster and steeper in the future than previously expected. While natural gas is helping to reduce emissions in parts of the world by displacing coal-fired power, the International Energy Agency recently released a landmark report in May that warned investors must avoid funding any new oil and gas fields for the world to achieve the Paris accord’s aspirational goal of limiting global temperature rises to 1.5 degrees.
UBS has raised its price target for ASX-listed oil and gas producers Santos and Oil Search by up to 2 per cent to reflect higher LNG spot prices in a tightening market. Spot prices in Asia averaged $US9.6 per million British thermal units during the second quarter of 2021. he bank has lowered its target for Woodside by 1 per cent as it believes higher spot prices will be offset by expected capital expenditure increases at Woodside and BHP’s $15 billion Scarborough LNG joint venture off the coast of Western Australia. A prolonged rise in international prices could spell more pain for domestic gas buyers in Australia where supply contracts are linked to LNG benchmarks. Industrial businesses like manufacturers that rely on gas for energy and as a feedstock have suffered steep price rises in recent years and recently lost an appeal made to the competition regulator to change how it calculates east-coast pricing to exclude costs associated with LNG production.