Wood Mackenzie: "Oil market rout could boost Asia’s gas demand" (plus an EMH vignette)

From LNG Industry:

Wood Mackenzie has released a statement claiming that the oil market rout could boost Asia’s demand for gas.

The consultancy claims that, in the short-term, the biggest downside risk from the oil price crash to gas supply is associated with gas production, largely from unconventionals in the US. Nonetheless, it is not an immediate effect, as Wood Mackenzie claims prices are still generally above variable wellhead operating costs.

As companies cut back on oil drilling, associated gas production growth, especially in the Permian, will begin to slow down. Wood Mackenzie’s Genscape estimates that, by the end of 2020, US gas production would be 0.9 billion ft³/d lower than pre-crash estimates. This could be exacerbated through 2021, with greater flexibility in drilling reductions. Genscape also estimates that end of 2021 production could be 3.1 billion ft³/d, which would be lower than pre-crash forecasts of 90.5 billion ft³/d.

In the statement, Wood Mackenzie points out that the majority of global LNG projects are supplied mainly from non-associated gas, and so little direct impact on LNG supply in the short to medium-term is expected.

Research director Giles Farrer said: “The greater risk to supply is pre-FID investments. Record LNG supply investments last year and plunging LNG spot prices this year were already testing the appetite of LNG project developers to sanction new LNG projects in 2020. But the drop in oil price will make these decisions more complicated.

“Lower oil prices will have several consequences for the sector. These include restricted capital investment budgets, reduced appetite for financing LNG projects with exposure to oil prices. US LNG projects selling on a Henry Hub-plus basis will also be perceived as less competitive than oil-indexed LNG....

....MUCH MORE

We were able to take advantage of the market's slowly (see chart, it took a while) dawning realization of the first part of WoodMac's report, the supply-side reduction in associated gas:
March 9
With the Hydrocarbon Complex in Shambles Natural Gas Pops 6%



 With the explanation referring back to a throwaway introduction to a March 8 post:
"Cabot Oil & Gas Stock Is Soaring While the S&P 500 Tanks. Here’s Why" (COG)
Ha!
From Barron's, March 9, 2020 11:48 am E:

Cabot Oil & Gas is the top stock in the S&P 500 during Monday’s market rout as investors anticipate that the sharp drop in crude oil prices will reduce the U.S. supply of natural gas and lift depressed gas prices.

Cabot shares (ticker: COG) were up $1.68, or 10%, to $18.08 in recent trading. Cabot is one of the largest and lowest-cost U.S. producers of gas in the prolific Marcellus region of Pennsylvania. Cabot also has one of the best balance sheets in the group with debt of about $1 billion and a debt-to-cash-flow...MORE

See also the intro to yesterday's "Assume Crash Positions: Goldman Cuts Brent Price Target To $30 'With Possible Dips Near $20'":

The second point is a bit of a corollary of the first.
As Texas and North Dakota become less economical, the bankers who at the moment are allowing the E&P's to produce flat out to make interest payments will come to the realization the producers are burning through the collateral underlying the whole edifice of the shale biz.
Which means at some point less production of oil, which means less "associated" natural gas being brought up, which means less pressure on the gas-focused producers. Too late for CHK but not for some of the less leveraged companies.....

Ha!
That crash positions post is timestamped 2:08 PM PDT, Sunday March 8 i.e. before the futures started trading on Henry Hub natty and the fact the opportunity was still there very early Monday morning led the computers (and yours truly) to question whether it was just a mirage. See The Big Apple for many refs and cites of this old chestnut:

The efficient market hypothesis (EMH) assumes such efficiency that it has led to a popular economics joke. Two economists are walking down the street and one of them notices what appears to be a $20 bill (or a $100 bill—the monetary amounts vary) on the sidewalk. “It’s not a real $20 bill,” the other economist declares. “If it were a real $20 bill, someone would have picked it up off the sidewalk already.” 

In the case of the natural gas example the market wasn't rational and the futures went from $1.61 to $1.99 in three days. At $100 per penny on your $1450 initial margin for outrights.

As the retail guys say "And Mr. Bigg, if you annualize that...."