LNG Prices Dip on Stock Builds as New Supply Looms

Asian spot LNG prices fell this week as top consumer Japan struggled with surplus stock and Chevron (CVX)'s new Gorgon project neared start-up, which will feed into an already oversupplied market.

 

The big worry was about Russia's Sakhalin-2 export plant, hit by a production "glitch" on Jan. 26, a spokesman said, as talk circulated of potential cargo cancellations.

 

Loading disruptions could tighten spot LNG prices for March delivery in Asia, trading lower at $4.90 per million British thermal units (mmBtu), from $5.10 per mmBtu the previous week.

 

Most traders said Sakhalin's technical problems will mean cargo rescheduling but not cancellation.

 

Gail India's purchase of a total of two cargoes from BG Group (BRGXF) and Qatar's RasGas in February and March, respectively, signalled further bearishness ahead.

 

The February cargo sold for around $5.00 per mmBtu, while the March cargo was mid-$4s.

 

Stockbuilds at Japanese import terminals put a ceiling on how much more LNG can arrive, spurring efforts by utilities to swap out or defer shipments, weighing on prices.

 

In South Korea, sub-zero temperatures boosted gas consumption and drained terminal stock levels "giving it more headroom than Japan" to handle imports, a Singapore-based trader said.

 

"Temperatures over the next few weeks will help determine their (Korea Gas Corp.'s) strategy for fuel procurement," he said.

 

Smaller peer Korea Midland Power Co. tendered for a March delivery on Monday; Pakistan is seeking five cargoes for March through April.

 

Chevron's Gorgon LNG export plant in Australia is expected to produce first LNG "within weeks", the oil major said in its results statement on Friday.

 

Added to Angola LNG's announcement that it is on track for first LNG this quarter, traders see more supply on the horizon.

 

A European LNG trader said more reloads were expected from import terminals including Gate, in the Netherlands, in February, citing demand from Brazil and the Middle East.

 

Egypt, smarting from a foreign currency crunch, is struggling to make ends meet in paying off mounting LNG import bills, traders said, although officials deny any such issues.

 

"They're (Egypt) just living from day to day at the moment, they're looking at how to survive until they get some money in the bank," a trader said.

 

"They've asked for extended terms from all of their suppliers, all of the arrangements with suppliers are different," he said. "They're basically discussing with everyone individually, some on a cargo by cargo basis and others on a strip deal."