Consultant: Asian LNG prices could fall as low as $4 in ‘ugly’ market

By JAMES PATON
Bloomberg

The slump in liquefied natural gas (LNG) prices still has further to go, even after a plunge of 60% from last year’s peak, according to FGE, an energy consultant.

LNG prices may sink as low as $4/MMBtu by 2017 because of a glut and probably won’t rise above $8 before 2020, FGE chairman Fereidun Fesharaki said. That compares with the latest spot price of $7.10 for LNG shipped to northeast Asia, according to New York-based Energy Intelligence Group.

“It’s an ugly environment,” Fesharaki said.

While the International Energy Agency four years ago envisioned the possibility of a golden age of gas, Japan’s return to nuclear power after the 2011 Fukushima disaster and cheaper alternatives are threatening demand. LNG producers, meanwhile, are forecast to add 50 million tons of new capacity next year, the largest single annual increase and equivalent to a fifth of current global demand, according to Sanford C. Bernstein & Co.

The bulk of the new supply is coming from Australia, where companies including ConocoPhillips, Origin Energy, Chevron and Royal Dutch Shell are spending more than $150 billion on export ventures. Most LNG projects have long-term contracts with customers linked to the price of crude oil, which has slumped about 50% in the past year.

Spot LNG prices in Asia have declined for six straight weeks with buyers “on the sidelines,” and have now slumped more than 60% from a record $19.70 in February 2014, according to Energy Intelligence Group. LNG projects condense gas into liquid form at about minus-160 degrees Celsius (minus-256 Fahrenheit) so it can be shipped to overseas markets.

“But as we go forward, the outlook looks better and better in the early 2020s,” said Fesharaki, whose firm advises big oil companies and banks. “The challenge is to persuade your board to go forward and put the money up. Nobody wants to spend that kind of money in this environment.”

Australia & New Zealand Banking Group said in July LNG prices could fall as low as $7 over the next six months due to weaker demand in Japan and South Korea before stabilizing in a range of about $8 to $10.

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