Growing Supply Pushes December Prices Sharply Lower

Asian spot liquefied natural gas (LNG) prices dropped this week as scarce demand, rising supplies and continuing weak crude oil markets put off hopes of a winter rally.

Prices slipped around 80 cents to $13.60 per million British thermal units (mmBtu) for December delivery <LNG-AS>, compared with last week, as a limited pool of buyers encountered rising supply.

Weak crude oil prices around $85 a barrel threaten to drain liquidity from spot LNG markets in January, when buyers arrange annual delivery programmes (ADPs) on long-term, oil-linked supply contracts.

Some ADPs with Qatar, the world's biggest LNG producer, are negotiated in January, traders said. In Europe, buyers can exercise the rights under their long-term deals from January.

Falling prices were partly explained by the absence of demand from Korea Gas Corp., the world's biggest LNG buyer, as it struggled to absorb supplies arriving under long-term contracts.

Kogas, as it is known, deferred deliveries of 40 summer cargoes until the winter.

A decline in spot prices across the peak demand winter period is also leading traders to close out some high-risk trading positions.

Energy companies and traders stashed several cargoes onto tankers floating in the ocean from August, when prices were extremely low, in a bid to profit from an expected winter rally.

E.ON sold a cargo aboard the Kita liquefied natural gas (LNG) tanker to PetroChina (PCCYF) for November delivery for a price around the mid-$14 per mmBtu range, traders said.

E.ON had loaded the cargo in August from Spain's Sagunto terminal as part of a floating storage play. Trading house Trafigura, along with several others, followed suit.

"Weak Asian demand, however, has kept spot prices at the start of the winter in check. Both cargoes (from E.ON and Trafigura) are bound for Asian buyers and sailing east, via the Cape of Good Hope," according to a note from consultants Waterborne Energy.

(By Oleg Vukmanovic, editing by Jane Baird)