Asia LNG Prices at Three-Year Low
South Korea and Japan, World's Two Biggest Buyers, Slow Purchases
The price of liquefied natural gas in Asia has plunged by nearly half over the past five months—to the lowest level in more than three years—as Japan and South Korea have bought less and supplies have increased.
The Korea Gas Corp. liquefied natural gas terminal in Tongyeong, South Korea, in April. South Korea is one of the world's two biggest buyers of LNG. Bloomberg News
Dealers say the drop has forced some to sell shipments at a loss. Analysts say that if the price stays at current levels, Asian buyers may be less willing to commit to buying gas from planned billion-dollar export projects in the U.S., Canada and Australia.
South Korea and Japan are the world's two biggest buyers of LNG, natural gas that is super-chilled into liquid form for shipping and storage, but both countries have slowed buying.
South Korea has been building up stockpiles of gas since last winter, when its nuclear power plants went offline after a safety scandal. Now those plants are restarting, reducing the country's need for gas.
In Japan, which became the world's biggest LNG buyer after the 2011 Fukushima nuclear disaster shut down a third of the country's electricity generation, summer demand, for power for air conditioning, hasn't been as strong as usual because the weather has been milder than normal.
The price of LNG cargoes on the Asian spot market, based on recent purchases by Japan, has fallen to less than $11 per million British thermal units, almost half of the $20 price in February, traders say. On Wednesday, the Platts Japan/Korea Marker, a market benchmark, was at $10.925 per mBtu, the lowest since March 2011.
An unusually steady supply from producers in Qatar, Australia and Southeast Asia, where production outages have been less common than usual, has also weighed on prices. Papua New Guinea, too, has been adding to supplies after a new plant started production there in May, ahead of schedule.
"The situation has been exacerbated because some traders got caught with expensive cargoes—bought at $14 and which need to be sold at $13 or lower," said Tony Regan, a gas consultant at Singapore-based Tri-Zen Consulting. Some buyers have been reducing their bids to take advantage, he said.
LNG buyers in Japan and South Korea typically make most of their purchases, accounting for around 80% of their needs, through long-term contracts at fixed prices. The remaining 20% is bought in the spot market, where prices fluctuate.
The term contracts allow North Asian utilities to buy slightly less, or more, than agreed on, to allow for seasonal changes in demand. Buyers have been taking advantage of this recently, scaling back their purchases and leaving suppliers such as Australia with extra tankerloads of gas to sell on the spot market.
That has added to the downward pressure on prices.
Sluggish economic growth in China and India, which use gas in industry and for transport, has also weighed on the market.
"Looking forward, spot prices will rise when bidding will start for winter cargoes but given the current market sentiment, it is unlikely that we will see price levels similar to last year's levels," said Abhishek Rohatgi, an analyst at consulting firm Enerdata.