Asian LNG prices set to tumble further to $4-5/unit – far below break-even point for BC gas
In order to make a profit of off gas fracked in northeast BC, piped to the coast, cooled into a liquid, then shipped to Asia, the break-even point is around $12/million british thermal units (mbtu). Well, in recent months the Asian LNG spot market price for LNG has dropped to the $7-8 range. But if that seems bad, consider that leading analysts are now predicting these prices to fall to the mid-$5 range in 2016 the $4/unit range by 2017 – and they see them staying there for a long time.
In late September, FGE Chairman Fereidun Fesharaki told leading global business publication Bloomberg that these prices won’t rise to $8/unit until 2020 – and bear in mind, if you’re looking at BC’s LNG future, that figure is still only two thirds of the break-even point for our gas. This is precisely why we have yet to see a single final investment decision from even one of the 21 proposed LNG projects on the BC coast.
“The biggest story is the increase in LNG export capacity,” Mike Fulwood, principal for global gas at Nexant Inc.’s Energy and Chemicals Advisory in London, told Bloomberg earlier this month. He predicts global LNG capacity will rise another 14% by Q4 of 2016, “while demand is increasing much more slowly in the main LNG importing countries.” The fact that players like Australia and Angola are bringing a number of terminals online next year and the US is set to open its first new LNG plant in 40 years, in Alaska, spells a death knell for BC’s LNG hopes.
Perhaps this is why The Malaysian Reserve – a leading local business publication – is predicting that that country’s oil and gas giant Petronas will likely put its planned LNG project for Lelu Island, near Prince Rupert, on hold until at least 2022 or 2024.
Check out this December 1 article from leading global business publication Bloomberg on the subject:
Spare a thought for anyone who bet on a recovery in liquefied natural gas prices after last year’s 45 percent plunge.
LNG to northeast Asia, home to the world’s biggest consumers, plunged 27 percent this year, outpacing Brent’s 23 percent slump as of Wednesday. While analyst estimates compiled by Bloomberg show that crude will recover in 2016, prices for the super-chilled fuel will probably extend declines by as much as 23 percent, according to a survey by Bloomberg.
As the U.S. gears up to start a new LNG plant for the first time in more than four decades and output from Australia to Angola increases, the glut will peak in 2018, according to Sanford C. Bernstein & Co. LNG, which Goldman Sachs Group Inc. said will this year overtake iron ore as the world’s second most valuable commodity by trade, fell to its lowest level since 2010 in October, according to World Gas Intelligence in New York.
“The biggest story is the increase in LNG export capacity,” said Mike Fulwood, principal for global gas at Nexant Inc.’s Energy and Chemicals Advisory in London. Capacity will increase 14 percent through the fourth quarter next year, “while demand is increasing much more slowly in the main LNG importing countries.”
The outlook for prices, global demand as well as new capacity from U.S. and Australia are all topics that will be discussed by executives, traders and analysts this week at the World LNG Summit in Rome.
As the price plunge ripples through markets, the growing output is impacting the world’s biggest producers of the fuel. Qatar waived a $1 billion penalty for lower imports under an Indian contract, while Russia’s Gazprom PJSC offered its first-ever gas auctions in Europe in September.
LNG for delivery in the next four to eight weeks in Asia cost $7.40 per million British thermal units as of Nov. 30, according to WGI. The spot price may fall as low as $5.70 next year, according to the survey of nine traders, executives and analysts. Brent crude may average $57.30 a barrel next year, according to 48 estimates on Bloomberg. It traded at $44.06 on Wednesday.