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East Asian spot prices continue to slide despite an increase in regional demand which saw Japan post record December LNG imports and South Korea break a nine-month bearish streak of year-on-year contractions.
But Japan and South Korea’s bullish December imports were not enough to arrest a slump in Asian prices, with flexible cargoes changing hands for less than $8/MMBtu, market sources told Interfax.
Boosted by a climb in utility demand for power generation, Japanese buyers imported 8.26 mt of LNG during December, up by 2.1% year on year.
Total Japanese LNG imports for 2014 also broke a new record, climbing to 88.5 mt as shuttered nuclear plants kept the island nation dependent on fossil fuels for power generation.
South Korean imports also began growing again during December, climbing by 7.6% year on year as colder-than-average weather increased the need for gas for power generation.
Overall, South Korean imports were down by 7% in 2014 as returning nuclear plants, healthy inventory levels and mild weather reduced the need for additional LNG.
Regional spot prices have now fallen by more than 50% from last year’s February high of $20/MMBtu.
A September rally – which saw prices climb to roughly $15/MMBtu during the month – lost steam despite the onset of the winter heating season.
The rout continued in January as new supplies flooded the market and Chinese demand weakened amid the country’s increasingly bearish macroeconomic signals.
Decline and fall
But analysts are warning of further falls as new Australian liquefaction plants come online and winter ends.
“With mid-winter LNG prices down by almost 50% year on year at $10/MMBtu, it seems like we have fast-forwarded a whole year and are seeing the impacts of Gorgon, Gladstone and APLNG all putting additional volumes into the market,” said London-based consultancy Energy Aspects this week.
“But, we have 32 mtpa of liquefaction capacity still to come this year. Instead, we are witnessing the effects of a fully ramped 6.9 mtpa PNG LNG and the first few cargoes from the 8.5 mtpa [Queensland Curtis] LNG being sold into the market. We have barely seen the tip of the iceberg, but prices have already sunk,” the consultancy added.
Chinese bears
As China slows, analysts are rewriting their economic growth forecasts, with Wood Mackenzie warning on Thursday that energy demand growth had slowed “beyond expectations”.
China’s December LNG imports plunged by 17% year on year to 2.02 mt as mild weather reduced consumption. Overall, China imported around 20 mt over 2014, a 10% increase over the previous year.
However, a combination of growing domestic production and pipeline imports reduced the country’s need for LNG, while a slowdown in the economy and the global fall in oil prices have slowed demand growth for the fuel.
“[Last year] was a significant year for China as economic rebalancing led demand growth – for a range of major energy commodities – and GDP growth decoupled significantly for the first time,” said the Edinburgh-based consultancy.
“While we expect domestic [gas] demand growth over the next few years to return to historic levels, a swift return to double-digit growth may not be achievable without lower city gate gas prices,” added Gavin Thompson, principal analyst for APAC Gas and Power Research.
The Chinese slowdown and global fall in oil prices have also pressured coal prices, which compete against LNG in Asia for power generation.
“The reduction in oil prices has driven a big reduction in coal prices, which means LNG has to be priced even lower to become competitive against crude,” said Energy Aspects.
“With global coal benchmarks down around the $60 per ton level, LNG has to be priced below $6/MMBtu to shift coal out of the power merit order for any reasonable volume,” the consultancy added.
Europe saturated
Things are not looking much better in Europe, with France’s Société Générale forecasting another precipitous fall in European gas demand for 2014. According to the investment bank’s SG Gas Pulse, demand across the continent fell by 12.9% over the year.
“Spot LNG is now so depressed that we expect no reloading from European regas facilities for 2015. This means net imports in Europe in 2015 will be the same as the level of gross imports witnessed in 2013 and 2014 as the system has now no flexibility price-wise to re-export LNG,” the bank said.
With Asian spot prices in the doldrums, reloads from European countries such as Spain have all but ground to a halt in recent months.
“Beyond this winter, the outlook for Atlantic Basin suppliers looking to place volumes into Asia is increasingly dim,” said United States-based consultancy PIRA Energy.
