Liquefied Natural Gas Prices Collapse to Lowest Since 2010

SEATTLE (Oil Monster): The collapse in the spot price of liquefied natural gas (LNG) in Asia is a short-term phenomenon that may well end up having a longer-term effect, especially on thermal coal.

The spot price dropped to $2.95 per million British thermal units  for the week ended February 7, the lowest price in records stretching back to 2010.

It has lost 57% of its value since the pre-winter peak of $6.80 per million British thermal units in mid-October, and is down 74% from the peak price in 2018 and 86% from the record high from February 2014.

The reasons for the slumping price are well understood, with both demand and supply factors playing a role.

On the demand side, growth in China has slowed from its breakneck pace as the world's second-biggest buyer of LNG works to build the infrastructure needed for more coal-to-gas switching in both residential heating and industry.

LNG demand in Japan, the world's top buyer of the super-chilled fuel, has also been sluggish amid a warmer than usual winter and the restart of some of its nuclear fleet, idled after the 2011 Fukushima disaster.

On the supply side, the commissioning of several new projects in Australia, which has overtaken Qatar as the top LNG exporter, as well as in the US, has led to an abundance of cargoes.

While it's unlikely that spot LNG prices will stay at the current depressed levels indefinitely, the trend towards structurally lower prices appears sustainable.

There is still no shortage of LNG projects being built, with 17-million tonnes of capacity due to be commissioned in 2020 alone, and considerably more likely in the next five years, as projects from Russia to East Africa start to come on line.

This supply surge is likely to have two effects on prices.

First, it will ensure that spot prices remain under downward pressure, and second, it will likely accelerate the shift away from long-term, oil-linked contracts to shorter-term, more flexibly priced deals.

This change in the way LNG is priced should give pause for considerable thought to any would-be developers of thermal coal power projects based on imported fuel in Asia, especially Japan.

Courtesy:www.businesslive.co.za