LNG to Snap 4-Year Run

LNG to Snap 4-Year Run as Sub-$10 Price Seen Amid Oil’s Drop
By Chou Hui Hong Jan 19, 2015 1:32 AM PT
  
Liquefied natural gas prices in Asia are poised to average below $10 per million a British thermal unit in 2015 for the first time in four years amid growing supply and as oil tumbles.
Spot and term cargoes will be priced lower this year from 2014, according to the Oxford Institute for Energy Studies, Bloomberg New Energy Finance and Holmwood Consulting Ltd. LNG prices will likely be “single digit” even as oil prices recover from their collapse, said Jonathan Stern, a senior research fellow from the U.K.-based Oxford Institute.
Long-term LNG contracts can be priced off by up to 15 percent of oil prices, and for the supercooled gas to sell under $10 Brent needs to trade below $66 a barrel, according to a Jan. 5 report by Bloomberg New Energy Finance and data compiled by Bloomberg News. Benchmark crude slumped almost 50 percent last year as the U.S. pumped at the fastest rate in almost three decades, exacerbating a global glut.
“The outlook for spot prices in the next few months remains weak as storage and incremental supply seem sufficient to cover seasonally higher demand,” BNEF Asia Pacific analysts including Ashish Sethia wrote in the report.
Brent crude fell below $65 a barrel on Dec. 10 and was trading down 57 cents at $49.60 at 5:06 p.m. Singapore time on the London-based ICE Futures Europe exchange. Crude may fall below a six-month forecast of $39 a barrel and rallies could be thwarted by the speed at which lost shale production can recover, according to Goldman Sachs Group Inc.
Supply Growth

LNG demand will be outpaced by supply growth and with oil futures remaining below $80 through late 2020, spot LNG should stay at $9 to $11 with a risk to the downside of the range, according to Sethia.
Lower oil prices will almost certainly result in single-digit spot LNG and long-term prices from the second quarter until the end of 2015 as the contract formulas “lock in” about six months behind oil, said Leigh Bolton, managing director of Holmwood Consulting, a Surrey, England-based energy consultant.
Spot LNG prices were at $9.95 on Jan. 17, 2011 and breached $10 a week later to stay above that level for nearly four years before falling back to $9.60 last week, according to data from New York-based Energy Intelligence’s World Gas Intelligence publication.
Tokyo Electric Power Co. (9501) and Chubu Electric (9502) are targeting a purchase price of $7 to $8 per million Btu for their joint six-cargo spot tender to buy supply even as Australia and Nigeria are selling a combined ten shipments. Japan’s two largest buyers of supercooled gas “should sit tight at $7 to $8 as the market is going to come to them pretty quickly,” said Bolton.