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Dave Forest

Dave Forest

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

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Is This Key Energy Indicator Finally Falling?

There's been one factor driving the international gas market lately. Asian LNG prices.

Prices for LNG into Japan and Korea spiked the last few years. Following Japan's nuclear fleet going offline in the wake of the Fukushima disaster. As well as some of Korea's reactors being idled after a certification scandal.

Both nations have looked to LNG to fill the power gap. Creating a perfect storm that's driven prices over $20/MMBtu, as recently as February.

But news this week suggests this effect may be moderating. An observation that should give pause to all investors exposed to international gas pricing.

Platts reports that the "Japan-Korea Marker" LNG price has fallen to $15.60/MMBtu. A significant decline from the high of $20.20 we saw just several weeks ago.

Some of the weakness is due to the LNG market moving into a "shoulder season" of lower demand. But stats from other parts of the world show that Asia may be seeing more than just the usual market slackening.

The big number here being LNG prices in Europe. Which are remaining stubbornly high.

Southwest European LNG was selling at $12.91/MMBtu this week. Down from a high this year of $17.18. A much less significant fall than Asian prices have taken.

The tandem moves have caused Asia's premium to Europe to contract. To a current $2.68/MMBtu--down significantly from the $3.31 premium seen earlier in the year.

Traders suggest that the reduced premium may have to do with strong South American LNG demand pushing up European prices. But the narrowing Asian margin could also signal that demand is moderating in eastern markets.

This would make some sense. Given that Japanese power generators particularly have been under pressure to use cheaper fuels like coal.

Perhaps high international gas prices are finally eating into consumption. If so, we could soon get a realigning of international gas markets. Important for both consumers and firms selling gas on the global market.

Here's to the key markers,

By Dave Forest




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