Monday, February 3, 2020

"LNG Prices Fall To 10-Year Low"

From OilPrice:

The global gas glut continues to grow worse, with LNG prices recently dropping to a 10-year low.
LNG prices in Asia recently fell below $4/MMBtu, down 40 percent from a year earlier. Prices in NW Europe (TTF) are down by nearly 50 percent, and Europe has record-high inventories for this time of year.

Mild weather in Asia, Europe and the U.S. have led to seasonally weak demand, with China in particular proving to be a disappointment to exporters. But a wave of new terminals coming online in the last year has also led to a huge increase in supply, dragging down prices.

That means that major markets will exit the winter season with plenty of inventory, which will likely prevent a price rebound. TTF prices (LNG in NW Europe) for summer delivery are trading at around $3.50/MMBtu. Some analysts think LNG prices could fall below $3 by the summer.

“Importantly, should mild weather or stronger than expected LNG deliveries in NW Europe continue to the point that they would add another 2 Bcm to storage…the market would have to move lower to look for the next lever of adjustment, arguably the curtailment of US LNG exports,” Goldman Sachs said in a report on January 27. “At current US gas forward prices, we estimate this would be tested with TTF and JKM moving $0.60/mmBtu and $0.80/mmBtu lower from here,” the bank said, referring to LNG prices in NW Europe (TTF) and in Asia (JKM).

In other words, if mild temperatures persist, and the glut grows worse, U.S. LNG exporters not under contract may be priced out. The caveat is that some of the LNG trade occurs under rigid contracts.

But even as some companies have shipments secured under contract, Goldman said that U.S. exporters would likely be the most affected by another decline in prices. “[W]e do not expect other LNG producers to balance the market by curtailing supply. This is consistent with our estimate that US liquefaction facilities face the highest variable cost among LNG exporters given that US gas needs to be bought from the grid as opposed to just getting lifted from the ground,” the bank said....
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