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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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This Six-Year Running Oil And Gas Trend Just Reversed Itself

The U.S. Senate this week approved a bill to speed permitting of new liquefied natural gas (LNG) export facilities. Just as news from one of the world’s most important LNG consumers shows the market isn’t what it used to be.

The place is Japan. Where statistics released Wednesday showed that annual Japanese LNG demand fell for one of the first times in recent memory.

Trade data showed that Japan’s total LNG imports for the fiscal year ended March 31 were down 6.2 percent as compared to the previous fiscal. With the country bringing in a total of 83.571 million tonnes of LNG for the 12-month period. Related: $91 Billion In Capex Cuts, A Serious Hangover For Oil

Here’s the most critical point. This was the first time in six years that Japanese LNG demand has fallen year-on-year.

That’s a crucial data point for the global LNG market. With rampant Japanese demand having been one of the major drivers of positive sentiment — and resulting business expansions — in the industry during recent years.

As the chart below shows, much of that ramp up in LNG demand came following the Fukushima incident in 2011. We can see how nuclear power generation (yellow bars) went to zero after 2011 — and natural gas use (red bars) jumped, along with coal (black). Related: Why Are Bankrupt Oil Companies Still Pumping?

Japan’s use of natural gas (red) spiked after the Fukushima incident in 2011 Related: Oil Majors Lose Faith In The North Sea – 100 Shut Downs Looming

But with Japanese nuclear plants now coming back online, it appears that Japan’s rush for natural gas is over. A fact that had been strongly suggested by LNG prices such as the Platts Japan-Korea Marker — which has fallen to as low as $4.25/MMBtu recently, from as high as $20 back in 2012/13 when Japanese imports were surging.

This week’s data suggest that the weakness in Asian LNG prices is likely to persist. At the exact same time that numerous new LNG export facilities are starting up globally — particularly in Australia, and to a lesser extent in America.

U.S. exporters seem to be addressing this by diverting shipments to markets like Brazil and Europe. Watch to see where growing LNG supply from the rest of the world ends up — and don’t be surprised to see prices remain low for the foreseeable future.

Here’s to a good six years

By Dave Forest

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  • JHM on April 22 2016 said:
    Nuclear is not what LNG producers need to worry about. All electricity production in Japan in 2015 was down 2.9%. Combustible fuel declined 5.5% or 48.8 TWh. Nuclear added 3.1 TWh, but this was eclipsed by non-hydro renewables which grew 37.1% to add 10.4 TWh over prior year. Hydro also increased by 7.1 TWh.

    So LNG, oil and coal need to worry about energy efficiency and renewables. Nuclear is still a small player in Japan only contributing 0.3% to production.

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