Utilities exit hot LNG market as gas prices drop
A plunge in prices is shaking some of the more marginal players out of the liquefied natural gas market, chilling what until recently was the hottest part of the energy industry.
Major utilities from Orsted A/S in Denmark to Iberdrola SA in Spain are exiting the business. Naturgy Energy Group SA has made no secret it isn’t comfortable with the volatility of LNG and was reported as considering an exit, and Vattenfall AB of Sweden won’t even think about entering.
The moves drain momentum from a push by companies in almost every corner of the energy industry to start trading LNG. Over the past decade, commodity trading houses and oil majors have joined other utilities such as RWE AG in building their trading desks and investing in new facilities to handle the fuel.
“Now it is a pretty painful moment for the LNG market with such low prices,” said Frank van Doorn, Vattenfall’s head of trading. “Vattenfall doesn’t necessarily need to be active in the LNG market. It is not an obvious business case for us at the moment.”
Optimism about the industry’s prospects has crashed into economics. New export projects from Australia to the U.S. have flooded the market with new supplies at the moment that warmer weather and the coronavirus in China curbed demand. The result is brimming storage tanks in Europe and prices for the commodity testing record lows.
Lower prices are putting some LNG exporters in a complicated situation where they must decide whether to shut in production or accept losses in delivering cargoes at prices that won’t cover their own costs, according to Domenico De Luca, head trading & sales at Axpo.
“In this environment we do see some curtailments already for a few certain LNG suppliers globally,” De Luca said. “This summer I wouldn’t be surprised to see more extensive maintenance planned as some operators choose to use the low price environment to plan upkeep and repairs. We are now approaching levels that some more price-sensitive U.S. LNG shippers would make losses on full costs.”