April 14, 2017 4:00 pm JST

LNG spot prices plunge in Asia on supply glut concerns

Trend seen putting downward pressure on Japan's electricity prices

A recent plunge in LNG prices comes amid sluggish demand and a growing oversupply of the fuel.

TOKYO -- Spot prices of liquefied natural gas in Asian markets slid 40% from a high seen in January, foreshadowing a possible drop in Japanese electricity prices if weak demand and rising output abroad exacerbate a glut of the fuel.

Spot LNG is currently trading in the upper $5 range per million British thermal units, a steep fall from early January, when prices approached $10. "There are no longer factors supporting buying like problems in Australian production [seen at the end of 2016], or halts in South Korea's nuclear plants, caused by an earthquake last fall," said Tatsufumi Okoshi, senior economist at Nomura Securities.

Furthermore, large LNG production facilities in the U.S. and Australia will come online this year. By around 2020, global LNG output is forecast to grow by roughly 100 million tons, equivalent to 40% of the fuel's trading volume in 2015.

Slack demand for heating following the end of winter is also putting downward pressure on prices. "The supply-demand balance will remain loose until around May," when Middle Eastern countries begin switching on their air conditioners, according to Mikiko Tate, senior analyst at Sumitomo Corp. Global Research.

Japanese power companies -- major consumers of LNG -- find little need to buy on the spot market, thanks to large stockpiles of the fuel purchased through long-term contracts. Three times in 2016 Japan's Ministry of Economy, Trade and Industry did not publish LNG spot prices in its monthly reports, due to a lack of purchases.

Japanese LNG imports had surged as nuclear power plants were shut after the massive earthquake in 2011. But imports fell 2% to 83.33 million tons in 2016, declining for a second straight year.

"With electricity demand below projected levels, companies will continue scaling back LNG use, consumption of which is easier to adjust than nuclear power or coal," said a source at a Japanese power company.

(Nikkei)

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