Production data shows the pace of natural gas supply growth has not slowed. AFP
Production data shows the pace of natural gas supply growth has not slowed. AFP
Production data shows the pace of natural gas supply growth has not slowed. AFP
Production data shows the pace of natural gas supply growth has not slowed. AFP

Business

Downward push on gas prices builds up

What's Up: Natural gas prices are coming under pressure again, ahead of a flood of supply expected to reach the market at the end of the month.

Laura Miller

March 20, 2012

  • English
  • Arabic

Natural gas prices are coming under pressure again, ahead of a flood of supply expected to reach the market at the end of the month.

The UAE may be facing a shortage of cheap, readily available gas, but globally, natural gas prices are being squeezed by oversupply.

Barclays Capital said the market could be flooded with excess product at a time when demand for gas for heating is diminishing as the northern winter wanes.

With the weather in the United States this month expected to stay unseasonably warm, the excess gas would need to find a home by undercutting coal, suggesting the gas market would need to balance at even lower prices.

Another knock-on effect, if storage operators are not disciplined enough to enforce contracts for gas to be withdrawn, is that gas stock rebuilding would begin while current levels are already high. Storage is already at 57 per cent of capacity, according to Barclays Capital.

"This outcome will likely put tremendous pressure on the rest of the contracts in 2012, especially the October contract, as the market fears even normal weather in the summer could mean that the market is on track to end October with storage beyond capacity," the bank's analysts said in a note.

Production data shows the pace of supply growth has not slowed. As a result, natural gas futures at the Henry Hub, the benchmark US pricing point and delivery point for New York Mercantile Exchange Index, were down 0.99 per cent yesterday to US$2.30 per million British thermal units, the biggest fall in a week. This is down from $3.084 at the start of the year.

Still, few producers forecast outright production declines for the year. On the demand side, the macro backdrop in the US continues to improve.

But for now, natural gas looks set to take a back seat in investors' portfolios.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Tailors and retailers miss out on back-to-school rush

Tailors and retailers across the city said it was an ominous start to what is usually a busy season for sales.
With many parents opting to continue home learning for their children, the usual rush to buy school uniforms was muted this year.
“So far we have taken about 70 to 80 orders for items like shirts and trousers,” said Vikram Attrai, manager at Stallion Bespoke Tailors in Dubai.
“Last year in the same period we had about 200 orders and lots of demand.
“We custom fit uniform pieces and use materials such as cotton, wool and cashmere.
“Depending on size, a white shirt with logo is priced at about Dh100 to Dh150 and shorts, trousers, skirts and dresses cost between Dh150 to Dh250 a piece.”

A spokesman for Threads, a uniform shop based in Times Square Centre Dubai, said customer footfall had slowed down dramatically over the past few months.

“Now parents have the option to keep children doing online learning they don’t need uniforms so it has quietened down.”

 

 

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