Global Demand Picture For Natural Gas Looks Increasingly Sour
Bearish moods seemed to have permanently settled in energy markets. The first and most obvious victim of the nosediving oil prices has been natural gas.
Once seen invincible, liquefied natural gas (LNG) growth could now be racing to the edge of a cliff. Falling natural gas prices and fears about slowing demand in European and Asia all point to the return of a buyers’ market. Meanwhile, as crude prices fall, the oil-indexed European and Asian LNG contracts are plummeting in value, making upcoming LNG projects unsustainable. The pessimistic scenario seems to be reinforced by slumping demand in Asia, where the majority of new and existing LNG volumes were heading.
Last week Japan’s Kyushu Electric Power Company hooked its Sendai-1 nuclear power plant to the grid and expects to ramp up its generation to 95 percent in the following months. Other plants are soon to follow. Analysts predict that Japan could bring back to life 11.5 GW of nuclear generation capacity by 2017, cutting the natural gas demand by around 11 million tonnes of LNG, or 12 percent of the country’s gas imports.
Up until recently, Japan’s incredible demand for imported energy kept a floor beneath LNG prices. Japan imported a record 120 bcm of gas in 2014 or close to 36 percent of world’s total LNG exports. Not surprisingly JCC (Japanese Crude Cocktail) LNG oil-indexed prices remained above the $15/MMBtu mark for most of 2014.
However, the situation has changed dramatically since the winter of 2015. With Brent losing more than half of its value, gas prices in Asia have plummeted to around $8/MMBtu, or less than half of peak prices seen just a few years ago. The situation could get worse as Japan is expected to scale back imports, and China is seeing a fall in consumption signaled by this month’s decision by PetroChina to skip a planned LNG delivery and shift it for later during the winter season.
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