MOSCOW: The OPEC agreement reached last week to cut oil output by 1.2 million b/d (removing around 1% of global oil supply from the market) has also impacted liquefied natural gas (LNG) prices. Spot prices for Asian LNG rose by 50 cents from the previous week to around $8.1 per million British thermal units (MMBtu), their highest price point since July 2015.
Spot LNG prices in Asia breached the $20/MMBtu mark in February 2014, then started trending downward over the next two plus years amid a growing supply glut of the super-cooled fuel. Earlier this year, prices dropped as low as $4.241/MMBtu for May delivery, a 42.5% drop year-over-year, and the lowest monthly average since July 2009, according to commodity price reporting agency Platts. However, prices started moving upward since then, mostly hovering in the $6 to $7/MMBtu range. Traders, according to a Reuters report on Friday, said two fundamental factors put upward pressure on LNG prices in Asia over the past week. First, the deal between OPEC and non-OPEC producer Russia to cut crude output. Also, colder weather in Northern Asia and Europe helped support prices. The Asia-Pacific region accounts for roughly two-thirds of global LNG demand.
Cold weather in the U.S. is also pushing up Asian spot LNG rates, as export prices from the Sabine Pass export project are linked to U.S. spot gas prices, which have risen by a third since November to over $3.6/MMBtu, the report added. However, expect any lasting impact from the OPEC deal on LNG prices to be marginal.
The fundamental problem for LNG markets isn’t just its historical linkage to oil prices, but the ongoing LNG supply glut that will continue to at least until 2020, and possibly longer. There’s simply not enough demand to soak up current supply, not to mention even more supply that will soon enter the market from new and soon to come on-stream projects in Australia, the U.S. and Russia. Global LNG output last year reached 250 million tons per annum (mtpa) and is projected to reach 330 mtpa by 2018. By 2018, when all of Australia’s ten LNG projects are on-stream, the country will have total liquefaction capacity of 85 mtpa, bypassing Qatar’s 77 mtpa.
