Europe set to benefit from surge in LNG supply

European gas markets are set to benefit from a surge in liquid natural gas (LNG) from Asia over the next few years, helping to allay fears over geopolitical uncertainty emanating from Russia and a welcome boost for European manufacturers.

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Asian gas prices have slumped by 60% over the past year due to mild weather and new supplies. The sharp drop in Brent crude prices has also weighed on LNG prices linked to oil. The decline now means that European gas prices, as measured by UK NBP are now higher than Asian LNG for the first time since early 2011.

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Commodities explained: Malthus

“Yet in all societies, even those that are most vicious, the tendency to a virtuous attachment is so strong that there is a constant effort towards an increase of population. This constant effort as constantly tends to subject the lower classes of the society to distress and to prevent any great permanent amelioration of their condition”

Thomas Robert Malthus was a British cleric and scholar. His principle work “An Essay on the Principle of Population” published in 1798 suggested that while population rises exponentially, agricultural output could only increase arithmetically due to the finite amount of land available. As a result, “positive checks” (described by Malthus as higher mortality caused by famine, disease and war) were necessary to bring the number of people back in line with the capacity to feed them.

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What do relative energy values say about future oil and natural gas prices?

Oil and natural gas prices in the US have historically tracked each other on the basis of relative energy values (oil has around 6 times the energy value of gas). Up until around 2008 any difference in relative values has been rapidly arbitraged away over a period of a few years or so. However, since 2008 the difference in relative values blew out to enormous proportions. While the collapse in oil prices since mid-2014 has brought energy markets more into line there is more to do which could have implications for both crude (WTI) and natural gas prices.

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