LNG price crash persists

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From Reuters today:

Asian spot liquefied natural gas (LNG) prices edged lower last week as buyers low-balled sellers amid ample supply from Papua New Guinea and Australia, while bets of a winter price pickup spurred some into floating storage plays.

Spot LNG prices for September delivery slipped slightly to $10.50 per million British thermal units (mmBtu) last week, compared with $10.60 per mmBtu on the week ended July 18.

“I think buyers are bidding around $10 for Sept delivery, perhaps up to $11 for October. So there may still be further downside, or we could have reached the floor,” one trader said.

The lows have spurred hopes that the traditional pickup in Asia’s winter LNG demand will trigger a substantial price rebound, even if it falls short of last winter levels when spot rates exceeded $20 per mmBtu.

As a result, some traders have decided to park LNG on tankers and wait out the slump until prices recover later in winter, riding the fortunes of the seasonal price spread.

Trading house Glencore is among those to have bet on a rebounding winter market as parts of multi-month storage play.

Traders say it has leased an LNG tanker for the purpose of storing LNG purchased at cut-rate prices, awaiting a price surge once cold weather eats through high Asian inventories.

A major European utility with an LNG trading desk has made the leap as well, traders said.

Here’s my doctored BG chart (my work in red):

GLNG_chart2

No doubt the we’ll see the winter rebound that’s beginning to look like more than just seasonality. The price deck may be slipping and another 50 million tonnes per annum will join the market in the next eighteen months from Australia alone.

And from the US:

India’s PM Narendra Modi will visit the U.S. in the coming days and the county is looking to import U.S. LNG without the compulsory Free Trade Agreement (FTA).

The issue is very much on the Prime Minister’s agenda, and we have indications that the US is seriously considering the matter,” a Government official told Business Line.

The goal is to negotiate a complete waiver from the existing conditions due to which the U.S. LNG exports largely depend on approval by the Department of Energy, FERC and other departments. It is in New Delhi’s interest to negotiate an exception and add future imports to the already signed agreements that GAIL has with Cheniere and Dominion.

It’s early days but today it looks like LNG price pressure is arriving much earlier than expected.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.