Page 7 - NorthAmOil Week 47

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per million British thermal units ($149.36 per 1,000 cubic metres). While prices for delivery in January are higher, according to market sources cited by Reuters in mid-November, at $5.90 per mmBtu ($163.19 per 1,000 cubic metres), this trend still means spot prices are at almost half the levels they were at a year ago. Indeed, the Jan- uary delivery price marks a record seasonal low, according to Refinitiv data.
The situation is no better in Europe, where LNG for December delivery at the Dutch gas hub has been trading at slightly below $5 per mmBtu ($138.30 per 1,000 cubic metres) this week, down roughly 45% year on year. And European storage is unusually full, preventing traders from shipping excess cargoes to Europe like they have tended to do in an oversupplied market previously.
The situation is exacerbated by forecasts of mild – and even unusually warm – winter weather across Asia, including for leading LNG importers Japan and China.
“Clearly there is no buying demand on the market. All inventories across the world are high, production is strong and the weather seems to be very mild,” an LNG trader told Reuters last week.
What next?
LNG trade is still taking place, but there are con- cerns that Pavilion’s move to cancel the loading of a cargo could be the first of several such deci- sions. And this does not bode well for new supply
due to enter the market in the coming months as yet more trains start up in the US and elsewhere. And longer-term trends are contributing to bearish sentiments about the LNG market’s potential. Both Europe and China are due to receive more gas via pipeline, even though China is still set to become the biggest LNG importer in the world in the coming years. Meanwhile, Japanese efforts to restart nuclear reactors are also anticipated to lead to the country’s LNG imports being displaced, though the plans have been beset by delays on safety concerns and local
opposition.
Nonetheless, these trends suggest that LNG
sellers will increasingly have to look beyond East Asia to sell additional cargoes. South and South- East Asia are expected to buy more LNG, and this is where sellers could turn at least some of their attention, even as East Asia continues to absorb the bulk of supply.
A cold winter could also provide a boost to the industry – though this is currently not forecast.
And for those buyers opting to cancel the loading of certain cargoes, especially if they are still obliged to pay for them – such moves could contribute to a shift away from long-term contracts underpinned by take-or-pay require- ments. Buyers are already pushing for more flexibility in how they purchase LNG. Having to cancel cargoes in an oversupplied market could spur this further.™
Asian spot prices for LNG fell for the fourth consecutive week in mid-November, with traders warning of further declines.
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