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Commodities

Spread between LNG spot prices narrows

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The expansion of the Panama Canal has allowed the passage of larger vessels.   © Kyodo

TOKYO -- Liquefied natural gas prices are falling in Asia due to an increase in supply in Australia, the fading of the "Asian premium" resulting from weak demand in Japan and elsewhere in the region, and a shift in the flow of Middle Eastern and African LNG from Asia to Europe.

In its statistical review released earlier this month, British oil giant BP said the flow of LNG has shifted to the west. Last year, the decline in Asian demand was offset by an increase in imports in the Middle East, North Africa and Europe.

In 2014, arrival-based Asian LNG spot prices jumped to about $20 per million British thermal units, widening the gap with European spot prices to $10. Many Asian utilities had contracts linked to crude oil prices, and crude oil prices hovered around $100 per barrel during that year. Japanese utilities also moved to procure LNG on a spot basis as nuclear power plants were shut down after the 2011 earthquake and tsunami.

Asian LNG spot prices are currently in the range of $5 due to the slump in crude oil prices since the second half of 2014 and a supply glut resulting from the launch of new LNG projects in Australia. Japanese utilities have refrained from actively procuring LNG as the liberalization of the country's retail energy market in April has made it difficult to estimate demand.

European LNG prices have been temporarily falling since the U.K. voted to leave the European Union in last Thursday's referendum, but the spread between Asian and European prices is beginning to narrow.

From next year, the U.S., which will become an exporter due to the shale revolution, will begin LNG shipments in earnest. With the expansion of the Panama Canal allowing the passage of larger LNG carriers, "U.S. LNG, which can freely choose destination, will weigh on Asian LNG prices," said an official at a major Japanese trading house.

 

(Nikkei)

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