The Impact of Natural Gas Prices on Economic Recovery and Emerging Economies as Prices Soar More Than 90%

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The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

While in the process of recovering from the global pandemic, the world is feeling another pinch as energy prices continue to surge globally. Last week, prices for natural gas hit a 13-year record high from a global supply shortage. Energy experts including Nina Fahy, the head of North American Natural Gas at Energy Aspects, believe that prices could go higher for the next couple of years. The surge is from factors such as weather conditions, increases in post Covid-19 demands, and glitches in gas production plants.

Natural Gas Volatility and Economic Recovery

The sharp spike in natural gas prices poses a potential threat to the global economic recovery, thus slowing growth in some parts of the world. In Europe, the situation has become critical as natural gas prices have soared 600% this year alone, affecting key economic areas in the region such as fertilizer manufacturing and agriculture. Prices have increased in the U.S. by more than 112% since January.

The side effect of higher natural gas prices is that as the prices jump, inflation — the increase in prices over a period of time — also follows, as the price for inputs ascends. For example, when gas prices rise it costs more to make fertilizer, in turn increasing fertilizer prices, which in turn pushes prices for agricultural products higher.

Rising natural gas prices could also affect employment, which is a solid indicator of economic growth, and negatively impact economic recovery. Rising gas prices may cause businesses to hold off on hiring because of uncertainty about the health of the economy. Concern about the economy’s future can cause businesses to spend less. Less spending results in less production, causing fewer sales. This situation can affect a company’s hiring plans or, in the worst case, cause massive layoffs.

Some Natural Gas Companies by Region

Williams Companies Inc. WMB is an American energy company focused on gas extraction, processing, and transport. The company owns more than 13,000 miles of gas pipelines in many shale regions, including North Dakota, Texas, and Pennsylvania. On average, Williams Companies Inc. produces 1.2 billion cubic feet of natural gas per day.

PetroChina Company Limited PTR is a Chinese oil and gas company with its headquarters in the Dongcheng district, Beijing. The company is currently the largest manufacturer of oil and gas in the Asian region.

YPF SA YPF is an Argentine energy company engaged in the exploration, production and transportation of oil and natural gas. In addition to natural gas, the company also offers diesel, lubricants, asphalts and many other crude oil products.

Tokyo Gas Co. Ltd 9531 is a Japanese company based in Minato-ku, Tokyo. Its core business is the production, supply, and sale of natural gas. The company is the main supplier of natural gas to major cities, including Tokyo, Kagawa, and Saitama, and has a pipeline network of more than 40 thousand miles.

Natural Gas and Emerging Economies

The recent spike in natural gas prices may not have severely hit developed countries, but for emerging economies, the pinch can be stern. Take for instance a country like Thailand, which depends heavily on natural gas for power generation. A surge in natural gas prices means the price of electricity would also rise. These high costs would impact the economies of companies that make fertilizer, steel, and other manufacturing industries that require a huge amount of electricity. For such nations, the ideal solution would be to have natural gas manufacturing companies within the country so they can produce it locally. 

One of the companies that is helping developing countries produce natural gas locally is NG Energy International Corp. (TSX.V: GASX), GASXF, (FRA: 56PQ).

NG Energy is a publicly-traded E&P company focused on developing natural gas fields in Colombia. Over the past year, the company has made significant progress towards reaching production status from its most developed asset, the Maria Conchita field, which is located in the Guajira Basin on Colombia’s Caribbean coast. The Maria Conchita field is expected to be fully connected to national infrastructure via a 14km pipeline by the end of the year, and once connected, the pipeline will contribute 15-25 MMSCFPD at full capacity.

The company recently announced a non-brokered private placement for C$8 million. A portion of the proceeds from the financing will allow the company to expedite the drilling program at the company flagship, the Sinu-9 block, by building roads and drilling pads concurrently rather than consecutively. The company has been granted an environmental license to drill out 22 targets at Sinu-9 which sits next door to Canacol Energy’s CNE main production field and holds prolific exploration potential.

The rising price of natural gas poses a potential problem to economic recovery. However, it could prove to be advantageous for NGE, which is set to reach producing status and commence flagship exploration in the midst of the global price surge.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.