Liquefied natural gas is poised to climb to a record as the world’s biggest buyers import unprecedented amounts amid forecasts for a colder-than-normal winter in North Asia.
Cargoes for the earliest delivery may rise as high as $20 per million British thermal units in coming months, according to nine of 13 market participants surveyed by Bloomberg through Oct. 3. Prices reached a record $19.40 last winter, according to World Gas Intelligence data. Temperatures in Japan, the world’s biggest LNG consumer, may drop below normal in December through February, while South Korea, the second-largest buyer, is also forecast to have a colder-than-average season.
LNG prices are rising just as Asian utilities including Tokyo Electric Power Co. rely on suppliers including Qatar and Australia to help replace lost nuclear power, imperiling Japan’s attempts to cut a record trade deficit spurred by last year’s fuel imports. Asian consumers are also facing increased competition for cargoes from Latin America, where Brazil is seeking more gas for power stations.
“With a cold winter, there could be a lack of liquidity and supply in the market for that winter peak,” said Steve Hoyle, the senior vice president for LNG marketing at Anadarko Petroleum Corp., the second-largest U.S. independent oil and gas producer by market value. “Supply over the next two years is very tight, and incumbent producers will do quite well.”
LNG prices are forecast to rise next week for cargoes delivered to North Asia in December, according to traders surveyed by Bloomberg News through Friday.
LNG advanced 6.7 percent in the third quarter to an average of $15.68 per million Btu and was at $15.80 as of Sept. 30, according to prices published by New-York based Energy Intelligence on the website of its World Gas Intelligence publication. Spot prices averaged $14.54 in the final three months of 2012 and $17.88 in the first quarter of this year, peaking in February, according to WGI.
Nine of the 13 producers, buyers, traders and brokers surveyed said prices may reach last year’s levels and even touch $20 per million Btu if temperatures in North Asia drop more than usual. The other four respondents in the survey forecast prices between $16 and $19 per million Btu.
Japan has a 40 percent chance of lower-than-normal temperatures from December through February and the same likelihood of average levels, the Japan Meteorological Agency in Tokyo said in a Sept. 25 statement. There is a 20 percent chance of warmer-than-usual weather, the agency said. Temperatures in the same period last year were below normal, with northern Japan experiencing an average of 1.2 degrees Celsius below the 1981-2010 mean, according to the agency. South Korea’s Meteorological Administration also said November and December will be colder than is typical.
Limited nuclear capacity and a need to rebuild winter stockpiles will pull LNG into Asia in the fourth quarter, Sabine Schels, an analyst for Bank of America Corp. in London, said in an Oct. 2 report.
“If the winter is going to be colder, then you’ll see a lot more buying,” said Tony Regan, a Singapore-based energy consultant at Tri-Zen International Inc., which counts Royal Dutch Shell Plc and Russia’s OAO Lukoil as clients. “If winter is mild, you’re going to see prices remain where they are.”
LNG has replaced nuclear energy as Japan’s primary source of power generation since the meltdown at Tokyo Electric’s Fukushima Dai-Ichi plant following the March 2011 earthquake. The country imported a record 87.3 million metric tons of gas last year and paid 6 trillion yen ($61.1 billion), double the bill in 2011, according to customs data. While purchases have slipped about 3 percent in the first eight months of the year, Japan will still buy close to 90 million tons by year end, according to a report from Sanford C. Bernstein in August.
Japan will enter winter with none of its 50 nuclear reactors operating, pending safety reviews. Kansai Electric Power Co. started maintenance at its Ohi No. 3 reactor on Sept. 2 and shut its Ohi No. 4 unit on Sept. 15, leaving the country without any atomic power for the first time since July 2012.
“Demand for LNG is very good through December, especially in Japan because there are no reactors to be reviewed for restarts,” said Osamu Fujisawa, an independent energy economist in Tokyo who predicts Japanese consumption will be 5 percent higher than last year. “South Korea may have more demand this winter because of their nuclear problems, probably 10 percent in December versus last year.”
South Korea may start the winter with at least four of its 23 nuclear plants shut. The country, which depends on atomic energy for more than 30 percent of its electricity, halted the reactors after discovering they were using components with faked quality certificates. The government wants to resume three of the units by end-November, Chosun Ilbo reported Oct. 1.
South Korea’s LNG demand this year is headed for a record. Purchases through August were up 15 percent from last year, customs data show, and consumption will increase 13 percent to about 40.9 million tons in 2013, according to Bernstein.
Japan’s utilities have had some success in reducing losses after raising power prices. Tokyo Electric posted a smaller operating loss in the fiscal first quarter, as did Kansai Electric. The two companies, which serve 42.3 million customers in Japan, cut operating losses by a combined 198.03 billion yen, they said in August.
Tepco, as Tokyo Electric is known, raised household rates by about 8.5 percent in September 2012. Kansai Electric increased its charges by 9.75 percent starting May 1. The utilities gained government approval for the raises, saying they were necessary to cope with rising fuel bills. Fuel costs for Japan’s 10 regional utilities climbed 2.7 percent to 1.7 trillion yen in the quarter, the companies said.
LNG prices rose last year even as utilities cut consumption amid power-saving efforts after lower-than-usual temperatures boosted demand by 3.1 percent in December, according to data from the Federation of Electric Power Cos. Two reactors were still operating at the time, producing 5.3 billion kilowatt hours of electricity in the three months.
An increase in fossil fuel imports would result in a third consecutive annual trade deficit in fiscal year 2013, according to the government-affiliated Institute of Energy Economics, Japan. Fuel import costs may rise 9.6 percent to 27 trillion yen in the year ending March 31, according to the IEEJ.
“Japanese buyers are under pressure regarding price, so they are a lot more cautious in buying,” Regan said. “In the past they’ve had the tendency to come out all together, and you’d see an immediate gain of $2. They’ve learned the error of the herd instinct, so they’ll be a lot more selective and discreet about when they come out and buy.”
LNG consumers are still preparing for increased winter demand by buying spot cargoes, or shipments for near-term delivery that aren’t sold under term contracts. Japan purchases most of its gas through long-term deals with nations including Australia, Indonesia and Qatar, the world’s biggest supplier.
Chubu Electric Power Co., Japan’s third-largest utility, will buy one LNG spot cargo every month from November through March to prepare for winter-season demand, a company official said in Singapore last month. Tepco will take delivery of a spot cargo from Norway on Oct. 16 and bought three shipments from Nigeria in September, according to data compiled by Bloomberg.
“Suppliers like Qatar will be the main beneficiaries because they have the largest swing volumes in the market, especially during winter,” Anadarko’s Hoyle said in an interview in Singapore last week. Prices may rise as high as $20 per million Btu this winter, he said.