Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

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Thematic (Sector/Industry)

Romania Oil, gas and consumable fuels / Thematic (Sector/Industry)

<h2>Demand Is Growing, but It Won't Be Enough to Offset the Latest Wave of Supply</h2><p>The latest wave of liquefied natural gas supply including new export capacity in the United States will extend an already oversupplied market to 2022 and weigh on spot prices in Europe and Asia. LNG capacity will surge to 600 billion cubic metres by 2019 from 400 bcm in 2014 once the latest project is finished, a 50% increase far outpacing the concurrent 100 bcm increase in global LNG demand. With U.S. LNG exporters only needing to cover variable costs in the short term, volumes will keep flowing even at prices as low as $4.50 per million British thermal units in Europe and $6/mmBtu in Asia. However, we see this excess supply eventually being soaked up by a return of European demand, emergence of Middle Eastern demand, and rapid consumption growth in Asia, bringing the market back into balance by 2022. New capacity will need to come on line in order to meet a supply gap of 160 bcm in 2025. The tighter market and the need to cover long-run marginal costs and generate acceptable returns on new investment should push prices to $8.50/mmBtu globally to earn adequate returns.</p><p>Investors should focus on firms with greater exposure to LNG relative to hub-priced gas to benefit from oil-linked long-term contracts and the likely widening differential between oil and natural gas prices. Also, we prefer firms with greater exposure to the next round of LNG investments, although as only one element of a portfolio. Including valuation and dividend safety, <a href="https://www.smartkarma.com/entities/22108" target="_blank" data-smartkarma-citation="entities:22108:1">Royal Dutch Shell PLC (RDSA LN)</a> stands out as a winner.</p><p><em>Analyst: Allen Good and Niklas Kammer</em></p>

Demand Is Growing, but It Won't Be Enough to Offset the Latest Wave of SupplyThe latest wave of liquefied natural gas supply including new export capacity in the United States will extend an already oversupplied market to 2022 and weigh on spot prices in Europe and Asia. LNG capacity will surge to 600 billion cubic metres by 2019 from 400 bcm in 2014 once the latest project is finished, a 50% increase far outpacing the concurrent 100 bcm increase in global LNG demand. With U.S. LNG exporters only needing to cover variable costs in the short term, volumes will keep flowing even at prices as low as $4.50 per million British thermal units in Europe and $6/mmBtu in Asia. However, we see this excess supply eventually being soaked up by a return of European demand, emergence of Middle Eastern demand, and rapid consumption growth in Asia, bringing the market back into balance by 2022. New capacity will need to come on line in order to meet a supply gap of 160 bcm in 2025. The tighter market and the need to cover long-run marginal costs and generate acceptable returns on new investment should push prices to $8.50/mmBtu globally to earn adequate returns.Investors should focus on firms with greater exposure to LNG relative to hub-priced gas to benefit from oil-linked long-term contracts and the likely widening differential between oil and natural gas prices. Also, we prefer firms with greater exposure to the next round of LNG investments, although as only one element of a portfolio. Including valuation and dividend safety, Royal Dutch Shell PLC (RDSA LN) stands out as a winner.Analyst: Allen Good and Niklas Kammer

Global Natural Gas and LNG Outlook: U.S. Exports Low Prices to the World