Natural Gas Prices Hit 4-Year Low... Related Stocks 'Plummet'

Warm Winter and Supply Increase Threaten $1 Level... Korea Gas Corporation and Samchully Fall

[Asia Economy Reporter Eunmo Koo] Natural gas prices have recently fallen to their lowest level in four years. This is due to reduced demand caused by warmer-than-average temperatures this winter, combined with increased supply from technological advancements. Related stocks are also showing declines.

According to Bloomberg on the 31st, natural gas on the New York Mercantile Exchange (NYMEX) closed at $1.83 per MMBtu (million Btu, the amount of gas producing 250,000 kcal) the previous day (local time). This is the lowest price in 3 years and 10 months since March 28, 2016, when it was $1.84. Since early November last year, natural gas prices have continuously declined from $2.86 per MMBtu, threatening even the $1 mark.

As natural gas prices continue to plunge, domestic gas companies’ stock prices are also falling weakly. Korea Gas Corporation, which manufactures and wholesales most of the liquefied natural gas (LNG) used domestically, closed at 32,950 KRW on the previous day, down 0.75% from the previous trading day. During the session, it dropped to 32,500 KRW, marking a 52-week low. Korea Gas Corporation’s stock has fallen 12.9% this year alone, and related natural gas stocks such as Kyungdong City Gas and Samchully, which are retail sales companies, have also declined by 9.2% and 5.3%, respectively, during the same period.

The recent decline in natural gas prices can be attributed to both supply and demand factors. First, supply is increasing. According to the U.S. Energy Information Administration (EIA), U.S. natural gas production last year is estimated to have increased by more than 9% compared to the previous year due to improved efficiency in horizontal drilling and hydraulic fracturing processes. This year, production is also expected to increase by 2.9% compared to last year.

Demand is decreasing. Generally, natural gas prices rise in winter as demand for home heating increases. However, this winter, due to global warming and other factors, temperatures have been above average, suppressing demand and accelerating price declines. However, since current U.S. natural gas prices have fallen to near the breakeven point, the possibility of further sharp price drops is considered limited.

It is expected to be difficult for the gas industry to escape the current situation of oversupply combined with reduced demand anytime soon. The natural gas market is shifting to a buyer’s market due to expanded LNG supply capacity and diversification of production sites. Park Kwangrae, a researcher at Shinhan Financial Investment, analyzed, "The oversupply situation is expected to continue until the early 2020s, and in the long term, due to innovations in extraction and production processes from technological advancements and the emergence of alternative resources such as renewable energy, natural gas prices are likely to remain at current levels." He also recommended approaching investments related to natural gas from a trading perspective rather than a long-term viewpoint.

With natural gas prices weakening, the earnings of related companies, which are about to be announced, are also overshadowed by clouds. According to financial information provider FnGuide, Korea Gas Corporation’s sales in the fourth quarter of last year are estimated to have decreased by 7.1% year-on-year to 7.0874 trillion KRW due to a decline in gas sales volume. However, operating profit is expected to increase by 3.8% to 488.3 billion KRW due to improved profits from overseas businesses.

This content was produced with the assistance of AI translation services.