Question

1. During the first four months of 2020 the spot price of crude oil has collapsed, while the price of natural gas has remained relatively stable. In this question I want you to discuss the pattern of prices for natural gas, paying attention to these elements:

a) What effects, if any, do you think the policy response to COVID-19 has had on the demand for and supply of natural gas in the US?

Answer 1

Dear Student,

Below are the answer to your question

A) Pattern of prices for natural gas

Natural Gas is a fossil fuel formed from plants and animals buried underground and exposed to extreme heat and pressure. Natural gas is used domestically for cooking, as a power source, in agriculture, and in industrial manufacturing. Natural gas prices fluctuate constantly depending mainly on production issues, stockpiles, weather conditions, economic growth, crude oil prices, and more recently coal. Natural gas is commonly measured in MMBtu, with 1 MMBTu equaling 1 million BTU

Interpretation

Just just like in the oil sector, LNG storage is quickly filling up with 17 LNG supertankers--more than normal at this stage of the year--currently idling off the emirates coast. Further, storing LNG is much more expensive--and therefore a much shorter-term solution-- than storing crude oil due to the former’s “boil-off” rate, which can lead to daily losses in the range of 0.07% to 0.15%.

Qatar’s low LNG production costs, especially at its Ras Laffan plant, might tempt it to lowball the market by cutting prices. However, this is a very myopic maneuver that will only prolong the anguish, as we recently saw with Saudi Arabia and Russia. Cutting production, though, is likely to be equally painful for Qatar after it was forced to lower its crude exports from 21316 QAR Million in February to 15913 QAR Million in March due to the price collapse. Qatar, together with the next two LNG giants Australia and the U.S., have maintained a near-100% utilization rate through these tough times.

U.S. Department Energy response to demand and supply for natural gas can be described in follwing ways

The U.S. Department of Energy’s (DOE) Office of Cybersecurity, Energy Security, and Emergency Response (CESER) has been closely monitoring the 2019 Novel Coronavirus (COVID-19) since January 31. Within CESER, the Emergency Support Function #12 (ESF#12) Energy Response Organization (ERO) continues to support the federal mitigation and response to COVID-19. CESER and the ERO continue to coordinate with federal, state, and energy sector partners to discuss preparations, provide awareness, and assess issues that may require federal support.

The U.S. Department of Energy’s ESF#12 Regional Coordinators have been virtually supporting activations in the National Response Coordination Center and FEMA Regions I, II, III, IV, V, VI, VII, VIII and IX. In the other regions, the DOE Regional Coordinators are monitoring and staying in regular contact with states in their designated regions to identify needs.

CESER advises energy sector partners to remain vigilant to cybersecurity threats. Energy sector partners are encouraged to work with the Electricity Information Sharing and Analysis Center (E-ISAC), the Downstream Natural Gas ISAC (DNG-ISAC), and the Oil and Natural Gas ISAC (ONG-ISAC) to remain vigilant to cybersecurity threats, including COVID-19 themed phishing emails, and to ensure that the latest cybersecurity guidance is provided to their organizations.

The Federal Bureau of Investigation (FBI) released guidance on defending against video-teleconferencing hijacking. On April 15, 2020 an alert on the North Korean cyber threat was released with recommended steps for mitigation. On May 5, 2020, an alert on advanced persistent threat groups was released. CESER also urges energy sector companies to assess the full breadth of risk within the supply chain, including that of managed and industry service providers to evaluate how COVID-19 may affect service.

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