--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Aug 26 Liquefied natural
gas (LNG) prices in Asia tend to rise ahead of the northern
winter, but this year it's possible that the gains will be
maintained for longer into the new year.
There appears to be a looming mismatch between LNG demand
and supply, with more import terminals coming on line across the
region than global export supply can keep pace with.
While many of the new terminals already have long-term
supply agreements in place, there is still likely to be pressure
for spot cargoes, especially from China.
Spot Asian LNG prices dropped to $15.25 per million
British thermal units (mmBtu) last week, and while they have
gained since the mid-year low of $14.13 in May, they are still
below the $19.67 per mmBtu peak, reached in early February.
As is customary in many commodity markets in Asia, China is
likely to be the swing factor in what happens to LNG demand.
Chinese imports of the super-chilled fuel were 9.679 million
tonnes in the first seven months of the year, a gain of 21
percent over the same period in 2012.
While this is an impressive gain and puts China on track to
meet the 16.5 million tonnes for 2013 imports forecast by top
oil and gas producer China National Petroleum Corp, it is still
well short of what the country is capable of buying.
Total import capacity is currently about 21.9 million tonnes
and is slated to rise by another 9.7 million tonnes by the end
of the year, with three terminals being commissioned.
Another 5.2 million tonnes may come online in 2014, which
would take Chinese import capacity to just under 37 million
tonnes, an increase of 68 percent on the current capacity.
However, it's unlikely that all of this capacity will be
utilised as China's domestic prices are low enough to render new
supplies of LNG uncompetitive, and there are limits as to how
much loss the state-owned oil giants are willing to shoulder in
order to boost natural gas availability.
Despite a 15 percent rise in domestic prices in July,
China's gas is around $8.85 per mmBtu, meaning current spot
prices are at a premium of about 72 percent.
However, while it's unlikely all the capacity will be used,
it's equally likely that some will, and this will boost Chinese
demand for spot LNG cargoes.
This will come at a time when other LNG import terminals are
coming online in Asia, including new facilities in Singapore,
Malaysia and South Korea.
Again, some of this capacity is covered by long-term
contracts, but it's worth bearing in mind that these contracts
will currently be met from existing supplies, thus diverting
cargoes that may have been available for the spot market.
JAPAN TO TAKE MORE LNG
It's also possible that Japan's LNG imports will continue to
grow, especially since it seems to be taking longer to get any
significant nuclear power capacity running in the wake of the
Fukushima meltdown in March 2011.
Japan's only two operating nuclear plants are scheduled to
be idled for maintenance by September, and the country may be
without atomic power until July next year, according to industry
This may boost LNG imports by 1.7 percent to fresh record
highs of 88.3 million tonnes for the financial year to March
2014, anther factor that may tighten Asian LNG markets.
On the downside for LNG demand is the situation in India,
where a falling rupee has made LNG more expensive.
LNG is too expensive in India to be used by power generators
and is only competitive in industries where it competes with
oil-based products like naphtha, such as fertilizer making.
While the depreciation on the rupee also boosts the price of
oil products, if LNG prices do rise for the northern winter,
it's likely that they will rise more relative to crude oil,
thereby making the imported gas less competitive.
Nonetheless, there is still significant new LNG import
capacity becoming available in Asia and little immediate boost
New LNG export capacity has come online in Angola and
Algeria this year, and prices have recently softened after a
blockade of Nigerian facilities was lifted.
However, the next huge boost to supply is coming from
Australia, which is expected to overtake Qatar as the world's
top exporter of the fuel within the next few years.
But the first of the seven projects currently under
construction, the 15.6 million tonne a year Chevron-operated
Gorgon project is likely to start by the end of 2014 at
The other projects then follow, with the last due to be
completed by 2017, although whether these timelines can be
maintained is uncertain given Australia's recent history of
delays and cost blowouts.
What does seem clear is that much of the rise in Asia's
import terminal capacity is likely to be operational before the
gains in supply come onstream.
Even if only some of the new import capacity is utilised,
it's likely to tighten the LNG market, and lift prices, until
the new export plants are commissioned.