[SINGAPORE] Global benchmark prices for natural gas have converged to their closest in five years, a trajectory created by a supply glut and an oil rout. That spells trouble for US and Australian projects coming online this year.
Prices in the natural gas hubs of Europe and Asia are at their closest to the US benchmark since 2010 after oil plunged below US$50 a barrel and gas supplies from Australia and the United States created a surplus of cargoes.
Asian prices may fall further as new projects come online in Australia and the United States, adding to the glut and depressing markets to the point that some of the facilities may not be able to export profitably.
"Spreads in gas prices between Asian LNG and US gas have fallen by 50 per cent from US$12 to US$6 (per million British thermal units). With liquefaction and shipping costs of US$6.50, arbitrage margins are now negative," Alliance Bernstein said in a report.
Global prices were all around US$5 per mmBtu before prices started to diverge five years ago. In North America, the shale gas boom led to a glut, pulling prices there to less than US$2 per mmBtu.
In Europe, dwindling supplies and unstable flows from a volatile North Africa pushed prices to US$8-10 per mmBtu.
The most dramatic moves were in Asia, where the closure of Japan's nuclear reactors following the Fukushima meltdown resulted in a surge in LNG demand. With Chinese consumption also growing, Asia prices rose to more than US$20 per mmBtu.