Forbes: Japan Diverting Excess LNG Signals Structural Changes In LNG Market

Liquefied natural gas (LNG) markets have come full circle since the 2011 Fukushima nuclear disaster in Japan that caused the country to eventually shut down all of its nuclear reactors. To replace lost power generation due to the shut-down, Japan’s LNG procurement escalated at a record pace, driving up prices for LNG in the Asia-Pacific region to unprecedented levels.

For the next several years, LNG markets entered a period of somewhat limited supply but exorbitantly high prices that exceeded any logical supply/demand fundamentals. Consequently, top LNG importer Japan, and the world’s second largest LNG importer, South Korea, India and others scrambled to bring prices down by various schemes but to no avail.

However, what the world’s largest LNG importers couldn’t do, over production did for them. With global LNG production reaching 250 mmtpa last year and with forecasts for that production to reach 330 mmtpa by 2018, prices for the super-chilled fuel have spiraled downward. In February 2014, LNG spot prices in Asia breached the $20 per million British thermal units (MMBtu) mark; however, prices have dipped into the high $5/MMBtu range for February delivery, with some forecasts calling for prices to drop as low as the $4 range sometime next year. MORE