Asian Spot LNG Price Could See Short Term Relief, Says Wood Mackenzie

Decline in Asian LNG spot prices will find temporary relief in the summer with demand growth in the Pacific outpacing that of global LNG supply, Wood Mackenzie said in its new quarterly analysis of global LNG fundamentals.

However the energy consultant added that as new Australian LNG supply ramps up towards the end of the year, prices will come under further downward pressure, converging back to European spot prices.

"For the first time since 2009, Asian LNG spot prices are trading at a discount to European spot prices, like the NBP. Benign weather conditions in North East Asia and ample supply availability, combined with low oil prices continues to put pressure on Asian LNG prices. In contrast, high seasonal demand and the cap imposed on Groningen production for the first half of 2015 are resulting in European spot prices trading relatively high and close to oil indexed contract prices, despite abundant LNG imports,” Massimo Di-Odoardo, Principal European gas analyst for Wood Mackenzie said.

However, Di-Odoardo warns that a typical summer price decline is not assured, that instead Asian LNG and European spot price levels will be sustained through this summer.  And, further, that rising winter prices are also not assured, and that instead prices in Q4 will fall, despite the beginning of the winter season.

Yingying Zhou, Asia LNG research analyst for Wood Mackenzie summarises the outlook for Asian demand: "The restart of some nuclear capacity in Japan and the commissioning of new nuclear and coal capacity in South Korea will result in lower demand in 2015. However under normal weather conditions we expect more LNG demand in China, while the ramp up of new contracts and more regasification capacity will facilitate new demand in South East Asia, India and the Middle East. Overall, we expect Asia Pacific LNG demand to be some 6 million tonnes higher in 2015 compared to last year, despite Q1 being lower."

The prognosis for Asia in the summer is that spot prices should rise, Wood Mackenzie added.

Through Q2 and Q3 Wood Mackenzie forecasts year-on-year demand growth to outpace that of LNG supply, helped by reduced LNG supply from West Africa, North Africa and SE Asia. However, spot prices will be capped by fuel oil equivalent levels, peaking around $8.5 per million British Thermal Unit ($/mmbtu), it stated.