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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Three Reasons Why LNG Prices In Asia Are Plunging

Prices for liquefied natural gas (LNG) remain weak going into what forecasters are claiming will be a warmer than usual winter season in the Northern Hemisphere. In fact, last week spot prices for the super-cooled fuel in Asian tumbled some 10 percent, hitting three month lows, an uncharacteristic development for this time of year. Reuters, citing traders, said that LNG spot prices for January delivery in North Asia LNG-AS were estimated at $10 per million British thermal units (MMBtu), 90 cents lower than last week.

Factors continuing to put downward pressure on prices include warmer temperatures, LNG storage levels in the world’s top three LNG importers (Japan, China and South Korea) remaining high and plunging Brent oil prices which long term LNG contracts are mostly linked to. Though spot purchases are not usually linked to oil prices, they often follow either oil prices upward or downward trajectory. A Singapore-based trader said that “the big question mark right now is how the weather will pan out as the market will quickly turn once it starts to get cold. But until then, it’s tank-top (inventory levels) right now in many places.”

LNG doldrums

Japan's weather bureau earlier this month said the El Niño weather pattern appears to have formed and that there was a 70 percent chance it would continue into the Northern Hemisphere for spring. Meanwhile, a U.S. government forecast predicted a 80 percent chance of El Nino lasting in the Northern Hemisphere unto spring. El Niño is a climate cycle in the Pacific Ocean that occurs every five years or more which has a global impact on weather patterns. The cycle begins when warm water in the western tropical Pacific Ocean shifts eastward along the equator toward the coast of South America.

Global oil prices are also putting downward pressure on LNG prices as oil prices have pivoted in just a little more than a month after hitting the mid $80s per barrel price point for global benchmark Brent crude and the mid $70s price point for U.S. benchmark, NYMEX-traded West Texas Intermediate Crude (WTI) crude futures.

Prices are now 30 percent off recent highs amid concerns of a growing supply glut widening from record oil output in the U.S., Russia and Saudi Arabia and after Washington issued sanctions waivers to several countries for their Iranian oil imports. Related: Goldman: Oil Prices Set For Rebound In 2019

This extra supply comes as demand growth is projected to dampen amid economic downturn from the ongoing trade war between Washington and Beijing and continued sluggish economic growth in emerging economies. A robust U.S. dollar is also eating into demand for oil since oil is traded in dollars and a strong greenback adds to the cost of oil imports, hitting particularly hard countries like India, the Philippines, Indonesia and others. However, weaker oil prices over the last month has offered some respite for oil import dependent countries.

The third reason that LNG spot prices in Asia are tumbling is that storage levels, as already mentioned, are full - particularly in China as energy planners in Beijing try to avert a repeat of last year’s fiasco when the government sought to replace coal with cleaner burning natural gas during the winter too quickly, resulting in a shortage of natural gas and the diversion of the cleaner burning fuel from industrial end users to residential users.

As far back as August, China began filling underground gas storage tanks, including state energy giant PetroChina, operator of the Xiangguosi storage facility, injecting gas from Myanmar to fill the vast chambers 3,000 meters (9,900 ft) under the mountaintop. Reports said at the time that China was aiming to turn hundreds of tapped and some still producing wells into storage facilities after a severe winter supply crunch left it short of the clean-burning fuel.

By Tim Daiss for Oilprice.com

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