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Dave Forest

Dave Forest

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

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A Key Insider Is Warning on Prices In This Sector

Interesting item this week on the global natural gas sector. And a warning from one major player in the space that prices could be headed much lower than many observers are expecting.

The company is China National Offshore Oil Company (CNOOC). A firm that said last week it sees the liquefied natural gas (LNG) sector seeing significantly weaker pricing coming up.

As reported by Platts, the comments came from the company's chief energy researcher, Chen Wei Dong. Who was speaking to the Canada LNG Export Conference and Exhibition in Calgary, about future shipments of LNG from proposed developments in Canada.

Related: 10 Points About China’s Pursuit Of Natural Gas

In short, Dong said, Chinese buyers aren't going to pay much for Canadian gas.

"We are in a strong position... and that puts us in the driver's seat while conducting price negotiations in Canada," Dong told the crowd. Going on to note that Chinese buyers would look to drive a "hard bargain" when drawing up LNG purchase contracts.

He cited China's recent natural gas supply deals with Russia as a major reason that China can afford to be stingy. "We are negotiating another deal with Russia," he said, "which we are hoping to sign late this year or early 2015."

Interestingly, these comments from one of the world's biggest petro-players come as LNG prices in Asia have been hitting multi-year lows. With signs emerging that demand is waning in a major way.

In major LNG buying nation South Korea, for example. Where last week data was released showing that August LNG imports were 22% lower than the previous year--at 2.54 million tonnes.

That marks the sixth-straight month this year where LNG demand has been lower than 2013.

A lot of the shift in demand here has been seasonal. With the country enjoying a warm winter and a cooler summer--reducing the need for natural gas in heating and cooling.

Related: China’s Natural Gas Demand Set to Triple by 2040

But at the very least it's a reminder that things have been pretty good in the global LNG sector the last few years. With a "perfect storm" of rising demand in Japan and higher-than-normal seasonal demand in Korea perhaps driving prices to levels that aren't sustainable.

Developers of LNG projects--as in Canada--should be thinking carefully about their price assumptions.

Here's to not counting chickens,

Dave Forest

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