Asia’s LNG in­dus­try strug­gles to com­pete

The Sun (Malaysia) - - SUNBIZ -

SIN­GA­PORE: The liq­ue­fied nat­u­ral gas (LNG) sec­tor has watched with joy how ther­mal coal prices have soared this year, hop­ing that the un­ex­pected spike would at last make LNG price com­pet­i­tive in Asia.

Al­though much cleaner than coal in terms of pol­lu­tion and car­bon emis­sions, nat­u­ral gas has strug­gled to make in­roads in Asia’s power gen­er­a­tion mix since it is typ­i­cally more ex­pen­sive to pro­duce elec­tric­ity from gas than coal.

De­spite an over 90% coal price rally to al­most US$100 (RM420.60) a tonne, and even with rel­a­tively low LNG prices of US$6.50 per mil­lion Bri­tish ther­mal units (mmBtu) ver­sus US$20 per mmBtu in 2014, gas still can not com­pete with coal in Asia.

“Even though coal prices have reached US$90 per tonne, it (LNG) is still not com­pet­i­tive,” said Chong Zhi Xin, prin­ci­pal LNG an­a­lyst for Asia Pa­cific at en­ergy con­sul­tancy Wood Macken­zie.

For Asian LNG to be­come com­pet­i­tive, Reuters cal­cu­la­tions based on fuel and power gen­er­a­tion costs show that coal – by far the fuel most widely used for elec­tric­ity gen­er­a­tion in Asia – needs to rise fur­ther from its cur­rent three-year highs, to­wards US$110 a tonne.

Coal prices are cur­rently near that level. Pushed by a do­mes­tic min­ing op­er­a­tion cap in China, which forced its power gen­er­a­tors to in­crease im­ports, prices for coal from Aus­tralia’s New­cas­tle port soared by 95% this year, to al­most US$95 per tonne, in what has been one of the com­mod­ity’s steep­est ral­lies ever.

“2016 has de­liv­ered its fair share of com­mod­ity mar­ket sur­prises. But none have been more un­ex­pected than the sharp re­cov­ery in coal prices,” Olly Spinks and David Stokes of Timera En­ergy wrote in a note on Mon­day.

But a con­tin­u­a­tion of the rally, or even a sus­tained pe­riod of coal at cur­rent prices, is seen as un­likely.

Gold­man Sachs said in a note this month that “risks are now skewed to the down­side” for coal prices.

The coal price for­ward curve is al­ready in deep back­war­da­tion, where car­goes for fu­ture de­liv­ery are cheaper than those for im­me­di­ate load­ing, show­ing an over US$20 per tonne price fall be­tween the fourth quar­ter of this year and the end of 2017, to lit­tle more than US$70 a tonne.

Coal fu­tures for 2017 de­liv­ery are also much lower than prompt car­goes at US$66 per tonne.

“This is con­sis­tent with mar­ket ex­pec­ta­tions that some of the shorter term con­straints of 2016 will ease into next year,” Gold­man said.

That would mean that LNG will con­tinue to strug­gle to com­pete against coal on price alone. – Reuters

RHB Acad­emy head Yasir Ab­dul Rah­man, RHB Group chief hu­man re­source of­fi­cer Ja­malud­din Bakri, RHB Bank­ing Group gen­eral man­ager (Asia Pa­cific) Greg Camp­bell and Mel­bourne Busi­ness School re­gional man­ager (Asia) Jef­fery Soong at the sign­ing of a strate­gic part­ner­ship for the RHB Lead­er­ship Sig­na­ture Pro­gramme Se­ries. The pro­gramme is part of the group’s proac­tive mea­sures in trans­form­ing its learn­ing ap­proach to de­velop ta­lent to meet an in­creas­ingly vo­latile fu­ture. The se­ries com­prises three core pro­grammes namely Tran­si­tion to Busi­ness Lead­er­ship Pro­gramme for Mid­dle Level Lead­ers, Emerg­ing Lead­ers for Front­line Man­agers and Foun­da­tion of Lead­er­ship for In­di­vid­ual Con­trib­u­tors.

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