It’ll Take More Than Yemen’s LNG Shutdown to Blunt Supply BoomHeesu Lee, Aaron Clark and Chou Hui Hong
There’s so much liquefied natural gas set to hit global markets this year that it’ll take more than the shutdown of Yemen’s only plant to threaten supplies.
As rebels seized army positions outside the nearby city of Balhaf, Yemen LNG Co. halted production and exports at its 6.7 million metric ton-a-year facility because of a “degredation of the security situation,” according to a statement on its website Tuesday. Its customer, Korea Gas Corp., and consultants including EnergyQuest and Manaar Energy Consulting, said that’s unlikely to disrupt the markets. Yemen accounts for about 2.2 percent of the world’s liquefaction capacity, data from the International Group of LNG Importers show.
The cost of LNG for delivery to Northeast Asia has slumped by more than half over the past year amid a collapse in oil prices and as supplies swell. About 12 million tons of the supercooled gas will start this year, the most since 2011, with more to flow in 2016, Bank of America Merrill Lynch predicted in a report earlier this month.
“We import about 2 million tons annually from Yemen but it doesn’t seem like the shutdown will have a big impact on supplies,” Song Kyu Cheol, a Daegu-based spokesman for Korea Gas Corp., known as Kogas, said by phone on Tuesday.
Yemen LNG declared force majeure, a legal clause meaning circumstances beyond its control make it impossible to meet contractual obligations. Clashes between Shiite Muslim Houthi rebels and a Saudi Arabia-led coalition of predominantly Sunni Muslim nations have worsened the security situation.
LNG prices in Asia are poised to average below $10 per million a British thermal unit in 2015 for the first time in four years. Benchmark crude, to which prices for long-term LNG contracts are linked, slumped almost 50 percent last year as the U.S. pumped at the fastest rate in almost three decades, exacerbating a global glut.
Prices for spot LNG shipments delivered to Northeast Asia in the following four to eight weeks fell 6.5 percent to $7.15 per million British thermal units, New York-based Energy Intelligence said April 8 on the website of its World Gas Intelligence publication.
“The market is well supplied,” Graeme Bethune, chief executive officer of EnergyQuest, said by phone on Tuesday. “It depends on how long the Yemen LNG plant shutdown lasts but you wouldn’t expect it to have any significant impact on the market.”
The LNG market will probably remain “very oversupplied” in the second half of this year and in 2016, Bank of America analysts including Francisco Blanch said in a report on April 2. Prices for cargoes to Asia may temporarily drop below $6 a million Btu in the latter half of 2015 as new supply from regions such as Australia start flowing into the market, according to the report.
“Yemen is just a sideshow given the expected new LNG supplies coming this year from the U.S. and Australia,” said Mohamed Ramady, an associate professor at King Fahd University of Petroleum and Minerals in Dhahran, Saudi Arabia. “What I’m watching is Australia because some of the large producers there are scaling back and that could affect the market.”
Yemen LNG processes and exports gas from the Marib area, according to the company’s website. The project has three long-term sales contracts with GDF Suez SA, Kogas and Total SA.
Total is the biggest shareholder in the project, with a stake of almost 40 percent, according to the website. Others include Hunt Oil Co. and SK Innovation Co., the website shows.
“You’d need something more major to happen,” Robin Mills, an analyst at Dubai-based Manaar Energy, said by phone. “We’re heading into summer so Japan and Korean demand are down and it will be a relatively easier time for the market to absorb this.”