LNG Rally Fading on New Supply as Nukes Set to Restart
The three-year rally in liquefied natural gas is cooling as Asia-Pacific supplies jump and demand slows from Japanese utilities preparing to restart nuclear reactors.
LNG shipped to northeast Asia next winter may be sold at the lowest price since 2012 for that time of year, when demand typically peaks, according to a Bloomberg News survey of traders and analysts. Exxon Mobil Corp. and BG Group Plc are bringing new supplies to Asia this year before at least four projects start in 2015, including the first U.S. exports.
Prices have doubled over the past three years since the Fukushima disaster in March 2011, as utilities turned to fossil fuels such as LNG to compensate for the loss of the atomic plants. Japan is preparing to restart at least two of 48 nuclear reactors that were shut in the wake of an earthquake and tsunami that hit the country.
“We have quite a lot of new supply capacity coming on,” Tony Regan, an energy consultant at Tri-Zen International Inc. in Singapore who predicts LNG prices may be at $17 per million British thermal units in the first quarter of 2015, said by phone this month. “There are a number of things that will moderate the upward potential of prices this winter. The regular one is nukes.”
Supplies may cost $18 per million Btu in the first quarter of 2015, the median estimate of 13 traders and analysts in the Bloomberg survey shows. That’s 9 percent lower than a record $19.70 in February, according to data from Energy Intelligence Group in New York. The fuel has averaged $16.18 this year, compared with $16.51 in 2013.
Exxon started sending cargoes to Asia from its $19 billion Papua New Guinea project last month, while BG Group is due to begin exporting from its Queensland Curtis plant in Australia at the end of 2014. Santos Ltd., Chevron Corp. and Houston-based Cheniere Energy Inc. (LNG) are among producers scheduled to start shipping LNG from new operations next year.
Global gas exports are forecast to increase by 18 million metric tons, or 7.5 percent, to 257 million tons in 2015, Energy Aspects Ltd., an industry consultant based in London, said in a report on May 28. The increase would be enough to meet China’s LNG requirements for a year.
Imports to Japan, the biggest buyer of LNG and once Asia’s largest nuclear-power producer, may rise 1.4 percent in 2014 before falling by 1.28 million tons next year as the nuclear plants restart, according to Energy Aspects.
LNG sold into Japan averaged $7.64 per million Btu in 2010, the year before the earthquake and meltdown of Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant, according to estimates from Tri-Zen International. Forecasts in the Bloomberg survey ranged from $16.50 to $19.50 for the 2015 first-quarter high.
Delays to restarts in Japan, which is facing public opposition to atomic power, may boost LNG demand. Two units may resume this year, Cantor Fitzgerald LP said in a June 12 report. This compares with a January forecast for 12 to start.
Japan has been without atomic power since September, when the last of its 48 reactors shut for checks. Utilities including Tokyo Electric, the country’s biggest, have applied for the Nuclear Regulation Authority’s safety review of 19 units, according to the regulator’s website.
“The underlying market tightness will cause average Asia spot prices for 2014 to remain robust,” Andrew Walker, the vice president of global LNG at BG in Reading, U.K., said by e-mail on June 11. The early start of Exxon’s Papua New Guinea project, some buyers holding high inventories and the weather outlook in key markets have caused prices to slip recently, he said.
LNG into northeast Asia has dropped to $11.95 a million Btu in the week ended June 16, the lowest since April 2011, amid “continued weak buying interest and a comfortable supply outlook,” according to the Energy Intelligence Group’s World Gas Intelligence publication. Prices may decline next week on more spot cargoes in the market, four of six traders said in a Bloomberg survey that ended today.
Japan, the world’s third-biggest economy, imported a record 87.49 million tons of LNG last year. The country may reduce consumption of the fuel this year as nuclear production resumes, Yoshihiko Sakanashi, the executive vice president of Electric Power Development, or J-Power, said in an interview on June 1.
The average price of spot LNG cargoes imported by Japan in May was $14.80, down from $16 a month earlier, the Ministry of Economy, Trade and Industry said in a report today.
The restart of the reactors in Japan “will change the mood of the market,” Hiroki Sato, the general manager of Chubu Electric Power Co.’s fuels department in Nagoya, said in a June 12 interview. “Spot prices will be stable at current levels in coming months and rise somewhat, but not to levels close to those of last year during the winter-demand season.”
Asia’s LNG buyers, accounting for about three-quarters of global consumption in 2013, are also considering North American supplies after a surge in extraction from shale deposits.
Cheniere Energy’s Sabine Pass terminal in Louisiana, scheduled to start producing LNG by the end of next year, is the first to win full approval for U.S. exports from the Federal Energy Regulatory Commission since ConocoPhillips’s Alaskan Kenai plant in 1967.
Sempra Energy (SRE) won final U.S. approval yesterday from the FERC to build its Cameron export terminal. The project in Louisiana will start operations in 2018, according to the San Diego-based company’s website.
In addition to LNG from Australia and the U.S., Mozambique and Russia will add to supplies in the global market, Osamu Fujisawa, a Tokyo-based independent energy economist who has worked for Royal Dutch Shell Plc and Saudi Arabian Oil Co., said June 17 by phone. “So there will be a lot of supply, and this will not be good for spot LNG prices.”
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