LNG prices have further to fall amid supply glut: Wood Mackenzie

Date

November 3, 2015

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Angela Macdonald-Smith

Early LNG cargoes from the new Gladstone projects are helping depress prices.

Liquefied natural gas producers may be in for years of prices much lower than even current depressed levels, potentially causing temporary plant closures, according to global energy consultancy Wood Mackenzie.

The latest analysis from the respected firm puts a possible floor for Asian and European LNG spot prices later this decade at $US5 a million British thermal units (MMBTU), but warns that lower coal prices could drag that price floor down to just $US4, about 40 per cent lower than current prices.

That could lead to exporters in the United States, but potentially also in Australia, shutting down production because they cannot cover their cash costs, Wood Mackenzie global head of LNG and gas Noel Tomnay said.

Spot prices have already dropped about two-thirds since early 2014 as new supply comes into the market from project start-ups, and demand growth disappoints in key markets such as China.

Some 130 million tonnes a year of new LNG supply could hit the market during the next five years, mostly from Australia and the US.

Wood Mackenzie says European coal prices will be a key determinant for spot LNG prices. Assuming benchmark European coal prices of $US70 a tonne and Japanese coal prices of $US80, then the floor price for gas in Europe and north Asia should hold above $US5 a MMBTU.

But if European coal prices are weaker than that, at $US50 a tonne, and Japan coal prices are $US60, then that floor for LNG falls to about $US4.

Prices above $US5 should be high enough to avoid American LNG export production being shut down, but at $US4, US exporters would have to consider shutting in for periods, which would then depress US gas prices, the firm said.

"The possibility of US LNG exporters being shut in will be very much determined by what happens in the coal market but it is a real possibility," Mr Tomnay said.

He noted that Australia's conventional LNG plants, which have low cash costs and have output covered by mostly long-term sales contracts, would not face this issue. More affected are the coal seam gas-based ventures in Queensland, which have higher ongoing costs as they need to keep drilling new CSG wells.

However, of the three Queensland CSG-LNG projects, only BG Group's Queensland Curtis project has sales based on a "portfolio" approach rather than tied to the project, giving only that venture the capacity to consider supplying its customers from plants elsewhere in its global portfolio or from the spot market, rather than keep producing from its Australian plant.

"I would be very surprised if they are not looking at this but whether they actually implement it remains to be seen," Mr Tomnay said.

He said the rationality for potentially closing down QCLNG would become more compelling if Shell succeeds in taking over BG, because of the greater number of other options Shell has to supply QCLNG's customers from its larger global portfolio.

Most of the output from Australia's $200 billion wave of new LNG projects is covered by contract prices, but some volumes are exposed to spot prices, especially for the several "commissioning" cargoes that are shipped from new projects before deliveries start under long-term contracts.

Shell global chief executive Ben van Beurden last week acknowledged that the "bit over 10 per cent" of the major's LNG business that is exposed to the spot market "of course sees a bit of pressure at the moment".

But he said the very low cash costs of LNG projects meant the business "remains very healthy from a cash perspective".

"Over the entire cycle, we still expect this to be a strong double-digit-return business," Mr van Beurden said.

Read more: http://www.theage.com.au/business/energy/lng-prices-have-further-to-fall-amid-supply-glut-wood-mackenzie-20151030-gkmqhr.html#ixzz3qRDF67RM 
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China has made and will continue to make strides which will embarrass many or most. With the slowdown has come reforms.

China's Economic Slowdown: We May Have Seen Peak Coal

http://www.forbes.com/sites/mclifford/2015/09/03/chinas-economic-slowdown-we-may-have-seen-peak-coal/

'jft310' pid='64208' datel Wrote:The formula is price of coal plus cost of cleaning it up . Coal prices need to drop because demand will fall because it's not clean without high cost of cleaning it up . LNG is clean . One needs to compare the mmbtu delivered cost of the different fuels . Can coal be cleaned up to compare economically to LNG prices ???What are the penalties for failure to clean up the coal plant discharges ?? Cough Cough .

Yes, coal can be cleaned up and be very economical in the end when the proper scrubbers are in place.  It's been done in Ohio as the plants we use are now some of the cleanest burning in the world and have SOX and NOX down to very low levels.  The question as with every fossil fuel is the CO2.  Energy out of these plants is some of the cheapest in the country where residential rates are .125/kWh delivered to residences.

'jft310' pid='64206' datel Wrote:One has to ask is there a big cost in using coal ?? Might ask the Chinese about coal after they finish coughing .Cough Cough .. It's not the cost of the raw coal that matters it's what's the after production cost of clean coal vs LNG . It's the delivered price of the energy to the customers that matters . This writer losses all credibility comparing the raw cost of coal to LNG prices . That means nothing it's what's the cost of clean coal per mmbtu vs LNG mmbtu .

Problem is this,  LNG at cheap ass pricing today and into the future is taking market share from big coal.  So Chobama can have his gas and less cough cough two.  This is a nightmare LNG market.  Existing LNG contracts are being renegotiated down, unusesed/unneeded LNG is being resold by buyers (Asian Utes) on the SpotMkt. LNG is becoming like a hot potato.