Flood of fresh supply sees liquefied natural gas spot prices hit multi‐year lows

• Date: 01 May 2019
• Published date: 01 May 2019
• DOI: http://doi.org/10.1111/oet.12683

GAS AND POWER

Flood of fresh supply sees liquefied natural gas spot prices hit

multi-year lows

A flood of new liquefied natural gas (LNG) liquefaction

capacity coming onstream—sanctioned before oil prices fell

back in 2014—has led to oversupply and a sharp fall in

LNG spot prices since last summer. The lower prices have

meant a surge in European imports as some cargoes from

outside Asia are backed out of the Pacific basin.

LNG spot prices in Asia sank to their lowest level in

10 years at the end of March, reaching $4.10 mmBtu,*

largely due to a flood of new supply, but also as a result of a

slowdown in demand in Asia, especially outside China. This

was largely down to an economic slowdown, resilient coal

consumption in many emerging markets, and increasing

expansion of renewables.

South Korea’s LNG imports fell

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by a fifth in the first

quarter of 2019. The world’s third largest importer of LNG

saw volumes decline to 10.37 mt in the first 3 months of the

year, down 2.6 mt/y on year. Imports to the world’s biggest

importer, Japan, are also down, falling by 9% in the first

quarter to 22.2 mn tonnes (30.2 bcm) due to the restart of

nuclear facilities following their shutdown in the wake of the

Fukushima disaster.

Until last summer, rising Chinese demand had been suffi-

cient to absorb additional LNG production capacity coming

onstream, despite widespread predictions of a supply over-

hang from 2017 (Chinese demand is now about 40 mt/yr

higher than had been expected by most forecasters a couple

of years ago). This year, demand is still set to grow strongly

by 14% (30-40 bcm) as the country continues to switch away

from polluting coal, but this is not enough to absorb all the

extra supply. New production—mostly from the United

States, Australia, and Russia—is expected to exceed con-

sumption increases this year by more than 2%.

Among the recent capacity additions in the United States,

Cheniere Energy (the biggest US exporter), added a fifth

train to its Louisiana Sabine Pass terminal in November,

increasing capacity to 26 mt/y and commissioned a new

5.0 mt/y facility in Texas. Dominion Energy’s 5.8 mt/y Cove

Point plant opened last March. Up to 14 new facilities are

expected to start up this year at three new terminals and one

existing one.

Crude-linked LNG term contract prices had also been

falling in line with weaker Q4 crude prices (there is a

3-month price lag for many term contracts), but firm crude

prices over recent weeks are likely to push up term contract

prices—which began towards the end of April. The higher

term prices helped push Asian spot prices back up above

Dec

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5

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7

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0%

10%

20%

30%

60%

50%

40%

70%

80%

90%

100%

Jan-18 Feb March

Yamal U.S. Qatar Algeria Other Total

April May

Million tonnes LNG

June

Total European LNG imports by source

July Aug Sept Oct Nov

Source: Refinitiv Eikon shipping data

Dec Jan-19

FIGURE 2 European LNG imports by source. Yamal, Russia

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