Price of LNG in Asia Lowest in Nearly Four Years
The price of liquefied natural gas in Asia has fallen to its lowest level in nearly four years, which is unusual for this time of year as winter is setting in throughout much of the region.
The slump mirrors this year’s broad decline in energy markets, but has also been triggered by a number of new producers coming to market, which has pushed prices down.
LNG prices have sunk below $10 per million British thermal units, down nearly 50% from a year earlier, as the region’s largest buyers–Japan and South Korea–are already stocked up for winter and supply is pouring in from new gas producers, according to Singapore-based traders. Conventional crude oil is down 40% so far this year.
About 235 million metric tons of LNG are traded globally each year and about 75% of that is bought and consumed in Asia. LNG is used mostly for power generation and transportation, as it is a cleaner alternative to coal and oil.
Demand from two major buyers, Japan and South Korea, has largely stagnated. Two of Japan’s nuclear power reactors are expected to restart next year, further lowering LNG demand. Traders said Japanese and South Korean buyers are so well stocked that they aren’t able to take advantage of the current low LNG prices.
Other countries including India, China and Thailand have been purchasing LNG at low prices, though supply has outstripped demand.
Papua New Guinea was the newest producer to add fresh LNG supply to the market this year. BG Group PLC’s Queensland Curtis project in Australia will further increase supply when it exports its first cargo in December. It has a 20-year supply contract with China National Offshore Oil Corp., or Cnooc.
As winter picks up, LNG prices are expected to rise, but aren’t likely to see a surge seen in previous years.
“The first quarter [of 2015] could be the last hurrah for LNG prices for a while, but if winter weather is mild even that could be a pretty tame affair,” analysts at consulting firm Energy Aspects said in a report.
Energy Aspects said a mild winter would also hurt any rebound in LNG prices, adding that it would be the precursor for “a couple of years of oversupply where it is hard to know what might rescue prices.”
The current spot market signals the easing of LNG prices in Asia after the price surge that followed the Fukushima nuclear disaster in Japan in March 2011, Singapore-based traders said.
New producers are likely to displace the Middle Eastern and Atlantic basin suppliers like Angola, Algeria and Trinidad & Tobago, independent energy consultant Andy Flower said. “That’s going to have a downward effect on spot prices,” he said.
Asian LNG spot prices are currently at about $9.6 per million British thermal units for January delivery into North Asia. It had touched a high of about $20 in February on winter demand.
The largest new supplier in 2015 will be Australia, which is expected to add LNG supplies from at least three new projects–Chevron Corp.’s Gorgon project, Santos Ltd.’s Gladstone project and Origin Energy Ltd.’s Australia Pacific LNG project.