The price of liquefied natural gas (LNG) this year may fall to record lows. The reason for this will be increasing the world’s supply of fuel and warm winter, limiting the consumption of gas.
Launch of new export projects in Australia in the United States threatens to flood the market with new supply. With the huge gas reserves in Europe and the expected slowdown in Chinese demand will lead to lower procurement of “blue fuel”. In the summer the price of LNG is likely to collapse.
Gas exports from the US rose amid the shale boom in the country. But a sharp decline in fuel prices will lead to a temporary reduction in supply. Producers who have signed contracts may make the decision not to send new shipments. Because prices are too low to get at least some profit after taking into account transport costs.
The supply from the Gulf of Mexico is currently estimated at approximately 2.65 dollars per million BTU (British thermal units), says Wood Mackenzie analyst Robert Sims. The difference between the price of gas at Henry Hub and export price of LNG has dropped to 25 cents.
“I think in the next few months we will see even lower prices, – said Torbjorn Tornqvist, CEO of Gunvor Group Ltd., largest independent trader of LNG. Balance of supply and demand does not look very good.” In the end, the buyers can ask for a review of long-term supply contracts, demanding the removal of restrictions on the resale of goods.
Who will benefit from falling prices for LNG
The Bank Morgan Stanley believes that low global prices for LNG are questioning new projects requiring final investment decisions (FID). The Bank has already lowered the forecast on the number of projects that have a chance to get FID. In addition, falling prices may force Qatar to postpone the planned expansion of capacities by 64%, which is scheduled for the period up to 2027.
At the same time the world’s largest importers of LNG, Japanese Jera Co. and Korea Gas Corp., will benefit from lower prices. Now they are ready to shift the center of gravity of their purchases on the spot market. In addition, according to analysts Morgan Stanley, may accelerate the “gas” transition of India.
Price sensitive buyers in the country are also ready to take more cargo from the spot market. According to the Bank, it’s Gail India Ltd and Petronet LNG Ltd and urban gazoraspredelitel.
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