ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintSite TitleTitle ChevronIcon Twitter
Commodities

Asian LNG prices drop to three-year lows amid supply glut

Slower growth in Chinese demand raises doubts about US and Canada export plans

LNG storage tanks at a Sinopec terminal in Tianjin, China: The Chinese government has been promoting a shift from coal to natural gas, pushing up demand.   © Reuters

TOKYO -- Spot prices for liquefied natural gas used in power generation are at three-year-lows following a warm winter in Northeast Asia and the seasonal drop-off of demand in spring.

Prices are falling in response to increasing supplies of LNG worldwide and speculation that the world's second-largest importer, China, will slow its purchases. Spot prices are around $4 per million British thermal units, their lowest in nearly three years.

LNG prices typically rise as winter approaches, due to greater power demand for heating. But this year they began falling from their $11 per BTU peak in September 2018. That is mainly because China began stockpiling LNG earlier than usual, and because Northeast Asia had an unseasonably warm winter.

Meanwhile, supplies are growing. Production began in the second half of 2018 at the Ichthys and Prelude projects in Australia, in which Japan's Inpex has concessions. The U.S. is also expected to export more LNG this year as its output of shale gas grows, and Russia is exploring for natural gas in the Arctic Circle. According to U.K.-based energy consultancy Energy Aspects, global supplies of LNG are expected to rise 10% this year versus last.

On the demand side, market players believe the growth of China's LNG imports will slow. The Chinese government has been promoting a switch from coal to natural gas to combat air pollution. In 2018, its LNG imports jumped 40% on the year to 53.78 million tons. The previous year they rose 50%, causing spot prices to surge.

China's imports will continue to rise in 2019, but more slowly, said Nicholas Browne, senior analyst at research specialist Wood Mackenzie. "The pace of the shift [away from coal] will become more moderate. Plus, a pipeline to send natural gas from Russia to China will be completed at the end of this year." Browne said, dulling the country's appetite for LNG. He forecasts LNG imports will rise by 8 million tons this year, versus 15 million tons in 2018.

Construction of the Power of Siberia natural gas pipeline from Russia to China is on track and gas is expected to begin flowing by December, said a senior executive at state-run PetroChina in March.

Big Chinese energy companies shifted from spot contracts to long-term ones last year. Spot prices "are likely to fluctuate less throughout the year," said Tatsufumi Okoshi, senior economist at Nomura Securities.

Low spot prices could affect the development of new supplies of LNG. A growing number of analysts caution that plans to export LNG from the U.S. and Canada may not materialize.

"LNG buyers remain reluctant to sign long-term contracts, and hence project developers that are able to finance a project without firm offtake agreements seem to be in the driving seat," said S&P Global Platts Analytics in a recent report, referring to advance deals to purchase gas.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends July 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media