Liquefied natural gas prices may be nearing a peak after reaching the highest level in more than three years, as Middle East and African supplies recover to meet unprecedented demand from Japan.
LNG prices may begin to retreat by the end of the year amid rising supplies at projects from Australia to Angola, according to Petronet LNG Ltd., India’s biggest buyer of the fuel.
A resumption in exports from Yemen may also ease constraints, according to Goldman Sachs Group Inc. Cargoes for immediate delivery to Japan, the world’s largest importer, cost about $18 per million British thermal units this week, according to World Gas Intelligence. They reached a record of about $25 in 2008.
Supply disruptions and heavier-than-normal maintenance at terminals around the world led to a surge in LNG prices this year just as Japan shut the last of its 50 nuclear reactors for safety tests, increasing its need to import gas for electricity generation. Pressure may subside as Woodside Petroleum Ltd. starts production at its Pluto project in Australia and Angola opens a delayed terminal in June.
“The current tightness may ease somewhat at the end of the year as plants in Australia and Angola start,” A.K. Balyan, managing director of Petronet LNG in New Delhi, said in a phone interview on May 11. “Buyers are looking forward to that.”
Japan, the world’s biggest purchaser of LNG, paid an average 70,147 yen ($883) a metric ton for its long-term and spot supplies in March, the most since November 2008 in local currency terms, according to the latest data available from LNG Japan Corp. That’s the equivalent of about $16.50 per million Btu. LNG for immediate delivery cost $17.91 this week, according to New York-based World Gas Intelligence.
Yemen LNG stopped operations at a 6.7 million ton-a-year export plant after a pipeline supplying the facility was blown up by saboteurs, a company official said on April 27. Attacks forced the company to halt operations on March 30 and for about 10 days in October. The line was attacked again this week.
“Global LNG supply will improve in the coming months with the ramp-up of Yemen LNG, the end of maintenance season, and the start-up of 13 billion cubic meters a year of new liquefaction capacity,” a Goldman Sachs team led by New York-based David Greely and Jeffrey Currie in London said in a May 16 report. Global liquefaction capacity was 276 million tons, or about 380 billion cubic meters, at the end of last year, according to estimates from Sanford C. Bernstein & Co.
Woodside, Australia’s second-biggest oil producer, started producing LNG at its Pluto project in April after a delay of more than a year. The company decided to add a fourth tanker to its Pluto export fleet, chief executive officer Peter Coleman said in Adelaide this week.
Angola will start shipments from its new facility in June, Oil Minister Jose Maria Botelho de Vasconcelos said last month. The facility, which will export 5.2 million tons a year, will be delayed by at least three months, Anabela Fonseca, a board member a Sonangol, the country’s state oil and gas producer, told reporters in Luanda in February.
Planned LNG liquefaction maintenance was about 18 billion cubic meters a year more in the second quarter than it was a year earlier, according to Goldman Sachs estimates. That has left the market “particularly tight,” the analysts said.
Oman LNG LLC was due to shut its plant for 38 days for maintenance from April 18. Qatar Liquefied Gas Co., the world’s largest producer, planned to close its smallest units late April for 13 to 23 days, two people with direct knowledge of the work said in March.
Ras Laffan Liquefied Natural Gas Co., one of two Qatari producers, was expected to shut two of its units between this month and next, a person familiar with the work said in November.
Nigeria LNG Ltd., the second-largest supplier of spot cargoes globally and Africa’s biggest exporter, canceled a tender to sell three shipments on the spot market this month, four people with knowledge of the matter said on May 2.
“The market is very tight, for sure,” Zach Allen, president of Pan Eurasian Enterprises Ltd., a Raleigh, North Carolina-based tracker of LNG shipments, said in an e-mail. “It all depends on how well Japanese buyers manage their needs.”
Japan is turning to gas-, coal- and oil-fired plants for electricity generation amid closures of atomic plants following last year’s Fukushima Dai-Ichi disaster. The country imported about 24 million tons of LNG in the first quarter of this year, up from 21 million in the same period a year earlier, according to data compiled by Bloomberg. Purchases in the year ending March were the most on record, government data show.
Hokkaido Electric Power Co.’s Tomari No. 3 reactor in northern Japan stopped generating electricity on May 5, said Satoshi Takada, a spokesman for the utility. Halting the reactor left Japan without nuclear power, an energy source which accounted for 30 percent of its electricity prior to March 2011, for the first time May 1970.
“It’s reasonable to assume $17 to $18 per million Btu toward the end of the year,” said Alexis Aik, an analyst at Facts Global Energy in Singapore who said some buyers are paying almost $19 Friday. “The situation on the demand side will ease as we expect Japan to restart two to three nuclear reactors by the end of the year and more next year.”
The Japanese government is close to a decision on whether to resume two reactors at Kansai Electric Power’s Ohi nuclear plant, Prime Minister Yoshihiko Noda said on a news program by public broadcaster NHK Friday.
Asian prices may still have further to rise this year as Indian gas output fails to keep up with demand from power stations in the world’s second-fastest growing major economy, according to Shantanu Bhushan, a Gurgaon, India-based analyst at Drewry Maritime Services Ltd.
A decline in production from domestic deposits will force Indian utilities to increase imports of the fuel, Oil Minister S. Jaipal Reddy said on May 8. Supply from domestic fields is likely to fall short of demand by 150.2 million cubic meters a day in the year that started April 1, he said.
“As the domestic gas availability is projected to decline in the next two to three years, the additional demand will have to be primarily met through imported LNG,” Reddy added.