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Excess production, depressed demand, and weak prices: this sums up the natural gas market right now even better than it sums up the oil market. Unfortunately, with the China coronavirus?

Excess production, depressed demand, and weak prices: this sums up the natural gas market right now even better than it sums up the oil market. Unfortunately, with the China coronavirus outbreak on track to become global, things for gas may well get worse before they get better. And while oil is suffering, at least it's got a cartel to attempt to balance things out. Gas doesn't, putting it at an even greater disadvantage.??

The global oversupply of natural gas is nothing new. A combination of new LNG and pipeline capacity and milder winters in some parts of the world combined to tip the market into oversupply that persists to date. However, demand has been worsening thanks to the outbreak that some are already calling a pandemic in the making. As a result, gas prices in Europe, Asia and the United States are falling.

In Europe, the benchmark has lost 27 percent since the start of the year after losing close to 50 percent last year. In the United States, Henry Hub futures prices are currently below $2 per million British thermal units until July, when the futures price tops $2 per mmBtu. According to Richard Soultanian, president of energy consultancy NUS Consulting Group, prices in the U.S. could weaken further, to $1.50-$1.60 for near-month contracts, before they begin improving later in the year.

What could possibly help gas prices? Europe is full of gas to the gills. So is Asia. The Energy Information Administration has forecast that U.S. gas inventories will hit a record later this year, at 1.935 trillion cu ft, which would be 12 percent above the five-year average. Production shows no signs of slowing mostly because a lot of the gas produced in the United States is associated gas from oil wells in the shale patch. There seems to be no way up for prices, and this means more pain for some gas producers, especially pure-play upstream companies in the U.S.

A recent report from energy data provider Enverus ?Rockies and Bakken in Focus? says that many producers active in the two shale areas have production prices considerably higher than benchmark prices, some higher than $3 per mmBtu. This smacks of bankruptcy unless things change quickly, after last year gas prices several times slipped into negative territory?the Waha hub benchmark once dipped to a negative $4.63 per mmBtu because of the lack of transportation and storage capacity.

Related: Saudi Arabia To Flood Oil Markets With An Extra 2.6 Million Bpd

The transportation problem remains although relief is coming in the form of the Permian Highway gas pipeline Kinder Morgan got cleared to build earlier this month. The pipeline will carry 2 billion cu ft of gas daily to the Houston area. Yet it won't change demand and domestic demand for gas in the United States is saturated. As one analyst put it to Bloomberg the world needs more gas-fired power generation capacity for gas prices to recover.

?Prices globally are converging and until there is a boatload of new generation built domestically and abroad, there is just simply not much room in the market,? Campbell Faulkner, OTC Global Holdings chief data analyst said earlier this month.

Yet demand could pick up sooner, at least in some parts of the world and notably the U.S., according to NUS Consulting Group's Soultanian. He expects increased electricity consumption during the summer season will provide some relief for U.S. gas prices as will gas exports to Mexico. The country is one of the biggest buyers of U.S. gas. With its demand growing as its population grows, Mexico will remain an essential outlet for surplus U.S. gas for lack of enough domestic production.

U.S. LNG exports are also set for a rise this year, according to the EIA, although the authority did note that ?U.S. LNG-export capacity will continue to serve growing global LNG demand, particularly in emerging Asian markets as long as U.S. natural gas prices remain competitive.?

Competitiveness is the name of the game in LNG as all major producing countries feel the pain from the coronavirus epidemic. Those who do a lot of energy trade with China, NUS Consulting Group's Soultanian says, will feel deeper pain than those less dependent on Chinese exports.

According to the EIA, U.S. LNG will remain competitive until about 2030. However, buyers from Europe are already turning cargoes away and this suggests a different reality at the moment. U.S. LNG producers are planning to bring more liquefaction capacity online this year. Cargo cancellations can't be good for these plans. However, bleak as the gas landscape is right now, there is hope and this hope comes from oil prices.

Related: Trump Prepares Aid Package To Relieve U.S. Oil Producers

?Covid-19 is causing oil prices to rapidly decline,? Soultanian told Oilprice, ?which most likely will result in lower 2020 US crude oil production that initially forecast ? thereby curtailing some of the production of associated natural gas.?

NUS Consulting Group sees the gas market rebalancing around the middle of 2021 because of the impact of the coronavirus epidemic on global supply and demand patterns. Without it, the market could have rebalanced by the end of this year or the beginning of 2021 at the latest. This means smaller U.S. producers vulnerable to price swings will have to endure one or two more quarters of pain.

Large players, especially state-supported ones like Qatari and Russian companies, but also the supermajors, will probably come out of this new gas crisis largely unscathed,?but we might see bankruptcies in the U.S. shale patch unless a really hot summer doesn't spur a major improvement in gas demand for power generation.

By Irina Slav for

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