(Bloomberg) — Liquefied natural gas prices are poised to test record lows this year thanks to an onslaught of new supply and warmer winter temperatures curbing consumption.
The startup of new export projects from Australia to the U.S. has flooded the market, while brimming stockpiles in Europe and an expected slowdown in Chinese demand have dumped cold water on consumption prospects. LNG for spot delivery to North Asia is on track to hit an all-time low this summer, while gas prices in Europe and the U.S. are trading at the weakest seasonal levels since 1999.
“The global oversupply of LNG has been building and building and building,” said Ron Ozer, founder of gas-focused hedge fund Statar Capital LLC in New York. “The gas market can’t stomach the oversupply and warm weather, and it’s getting both.”
This is what the rock-bottom prices mean for the industry:
American Halt
U.S. gas exports have surged amid the nation’s shale boom, but plummeting prices may now throttle back shipments or encourage sustained maintenance while firms weather the storm. Producers and companies with off-take agreements may decide not to load cargoes because prices are too low to earn a profit after accounting for shipping costs.
With cargoes from the Gulf of Mexico currently priced around $2.65 per million Btu, cash margins are positive only because of weak U.S. benchmark prices, according to Robert Sims, an analyst at Wood Mackenzie Ltd. There’s a chance that production could be reduced if the spread between benchmark Henry Hub and U.S. Gulf LNG narrows 25 cents, he said.
Torbjorn Tornqvist, chief executive officer of Gunvor Group Ltd., the biggest independent LNG trader, sees the market about 50 cents away from shut downs.
“We can see even lower prices in the next few…
Source: FuelFix
