LNG rollercoaster seen getting wilder until China builds storage

Spot LNG in northeast Asia plummeted 30% from mid-January peak

The rollercoaster that drags liquefied natural gas prices higher as demand jumps in the northern hemisphere winter is going into overdrive.

After a winter in which an unexpected boost in demand from China pushed prices to threeyear highs, spot LNG in northeast Asia has plummeted about 30 per cent from its mid-January peak. Summer plunges and winter spikes are the order of the day, at least over two years, said Pablo Galante Escobar, head of LNG at Vitol Group, a commodities trading house active in LNG.

“Seasonality will be much more accentuated,” Escobar said at the International Petroleum Week in London. “We’ll have weak summers and strong winters, with China playing such a big role in the market.”

China, which boosted LNG imports 46 per cent last year as it turned to natural gas to combat pollution from coal, lacks the storage facilities that would help smoothen out the swings in prices between winter and summer. Rising global production paired with limited or falling demand in traditional summer markets might exacerbate those moves.

During the next two summers, there will be “a lot of pressure” on prices as additional LNG arrives from Australia, the US and Russia, said Escobar. Yamal LNG, a northern Siberian plant that started exporting in December, will also play a role in this, as tankers will be taking the shortest route to the Far East via the Northern Sea Route between June and November, setting prices in the biggest consuming region.

Egypt’s move

On top of that, Egypt’s plans to stop LNG imports this year thanks to booming domestic production will push the market into a “structural oversupply, particularly in the summer months” for the next three years, he said.

The overhang in LNG is expected to remain until at least 2022, Tor Martin Anfinnsen, a senior vice president at Norway’s Statoil.

Of course, cheaper prices in the northern hemisphere summer will be welcomed by buyers in South America, as well as in the Middle East and southern Europe where the fuel is used to meet power-generation demand for cooling. China’s impact on seasonality may not last long two to as the nation will quickly build storage, leaving weather as the dominant factor, said Melissa Stark, managing director, Energy and Utilities, at Accenture Plc.

“With the Chinese being very quick to do anything really I don’t think that the exaggerated seasonality would last,” she said. “But when you have extremely cold winters in the US or in Europe, it makes a huge difference, or even extreme warm summers in the US. That is going to drive volatility.”