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LNG to snap 4-year run as sub-$10 price seen amid oil's drop
[SINGAPORE] Liquefied natural gas prices in Asia are poised to average below US$10 per million a British thermal unit in 2015 for the first time in four years amid growing supply and as oil tumbles.
Spot and term cargoes will be priced lower this year from 2014, according to the Oxford Institute for Energy Studies, Bloomberg New Energy Finance and Holmwood Consulting Ltd.
LNG prices will likely be "single digit" even as oil prices recover from their collapse, said Jonathan Stern, a senior research fellow from the UK-based Oxford Institute.
Long-term LNG contracts can be priced off by up to 15 per cent of oil prices, and for the supercooled gas to sell under US$10 Brent needs to trade below US$66 a barrel, according to a Jan 5 report by Bloomberg New Energy Finance and data compiled by Bloomberg News.
Benchmark crude slumped almost 50 per cent last year as the US pumped at the fastest rate in almost three decades, exacerbating a global glut.
"The outlook for spot prices in the next few months remains weak as storage and incremental supply seem sufficient to cover seasonally higher demand," BNEF Asia Pacific analysts including Ashish Sethia wrote in the report.
Brent crude fell below US$65 a barrel on Dec 10 and was trading down 57 cents at US$49.60 at 5:06pm Singapore time on the London-based ICE Futures Europe exchange. Crude may fall below a six-month forecast of US$39 a barrel and rallies could be thwarted by the speed at which lost shale production can recover, according to Goldman Sachs Group Inc.
LNG demand will be outpaced by supply growth and with oil futures remaining below US$80 through late 2020, spot LNG should stay at US$9 to US$11 with a risk to the downside of the range, according to Sethia.
Lower oil prices will almost certainly result in single- digit spot LNG and long-term prices from the second quarter until the end of 2015 as the contract formulas "lock in" about six months behind oil, said Leigh Bolton, managing director of Holmwood Consulting, a Surrey, England-based energy consultant.
Spot LNG prices were at US$9.95 on Jan 17, 2011 and breached US$10 a week later to stay above that level for nearly four years before falling back to US$9.60 last week, according to data from New York-based Energy Intelligence's World Gas Intelligence publication.
Tokyo Electric Power Co and Chubu Electric are targeting a purchase price of US$7 to US$8 per million Btu for their joint six- cargo spot tender to buy supply even as Australia and Nigeria are selling a combined ten shipments. Japan's two largest buyers of supercooled gas "should sit tight at US$7 to US$8 as the market is going to come to them pretty quickly," said Mr Bolton.