LIQUEFIED NATURAL GAS: Improved Supplies could Reduce Prices Further

Notwithstanding the crash in crude oil prices over the past couple of months, spot LNG prices in Asia peaked in May, before cooling off in June. Strong demand from Japan and South Korea is keeping prices high, but easing supplies are leading to a softening of prices now.
“Spot LNG prices are currently softening in Asia,” confirmed Hong Chou Hui, managing editor, Asia LNG, Platts. “Just a month ago, prices of spot LNG cargoes delivered to Japan and South Korea were at a high of $18.50/ mmBtu, while they were $15.75/ mmBtu for west India. They have since come down to $16.825/ mmBtu for Japan and South Korea, and $14/ mmBtu for west India as of June 15, 2012,” he said.
An improvement in supply is considered as the main reason for the fall in prices as the demand for LNG is still healthy. Hong said that the key factor is a global supply overhang, with spot LNG cargoes readily available from Nigeria, Trinidad & Tobago, Australia and Indonesia. It also coincides with the end of planned maintenance programmes at various liquefaction facilities in differentparts of the world.
Japan’s LNG demand rose substantially in the past year as the country continued to reduce nuclear power generation in the wake of the Fukushima disaster.
The demand-supply dynamics warrant spot LNG prices to fall further to more realistic levels in the coming weeks, say $13 per mmBtu, says AK Balyan, managing director and CEO of Petronet LNG, which is India’s biggest LNG importer.
Sameer Bhatia, consulting leader - oil & gas, Deloitte Touche Tohmatsu India, believes any moderation in spot LNG prices would not be significant. According to him, the short- and mid-term outlook is bleak, with spot prices expected to stay high.
In the long run, however, things could be better again, he believes. Demand from Japan will cool off a bit as it has already initiated deliberations on getting select nuclear capacities back on track. And there is hope of China replicating the US shale gas success story, albeit in a smaller way. More supplies from Australia and even the US could cause some moderation in prices as well.