Global LNG Prices Fall on Lackluster Demand

LNG ship

By MarEx 2015-01-23 12:31:26

Asian spot liquefied natural gas prices for March delivery fell sharply for a second week as traders said supply disruptions failed to derail the market's downward trajectory weighed by weak demand.

The price of spot LNG fell to $8 per million British thermal units (mmBtu) on Friday from $9.00 last week.

One bullish factor for the market was Yemen declaring force majeure on LNG deliveries from its Balhaf plant, as security deteriorated after the collapse of the government.

Yet traders said Asian LNG prices were not impacted as it was expected the situation could be resolved quickly while the global market remained oversupplied.

Traders said falling oil prices were encouraging some utilities to switch away from LNG to fuel oil for power generation, given the time lag of around six to nine months for lower oil prices to filter through to oil-linked LNG contracts.

Oil prices have shed more than 50 percent since June weighed by oversupply.

Oil demand in Japan, the world's top LNG importer, grew in December, as it became increasingly competitive for power generation, Macquarie Bank said.

"While LNG prices have fallen commensurately, the negative crack spread offered by higher sulfur fuel oil prices makes it more attractive, excluding negative environmental implications," the bank said.

One trader said that beyond Japan, fuel switching could happen more widely: "Technically they can do it anywhere, as long as they have such capacity to burn alternative fuel."

Adding to supply pressure, Indonesia's Bontang LNG plant tendered to sell three cargoes, traders said.

On the demand side, Japan's Tokyo Electric Power Co and Chubu Electric Power Co, are expected to buy a six cargoes from Vitol and GDF Suez in their first joint tender.

Mexico's CFE tender to buy 13 cargoes from February to November remained in focus, as traders awaited the result, with little fresh demand elsewhere in Latin America.

By Sarah McFarlane and Oleg Vukmanovic (C) Reuters 2015.