Spot LNG to stay below $8/mmbtu in May/June

Vol 18, PW 18 (07 May 15) Midstream, Downstream, Renewables

Low oil prices, and weak summer demand from major consumers Japan, South Korea and China are likely keep spot LNG prices hovering below $8/mmbtu at around $7.20-$7.50/mmbtu for cargoes delivered in the second half of May and the first half of June in India.

"$7.60/mmbtu should be the maximum," a LNG industry analyst tells us. "As happens every year demand in northeast Asia will slow down from May-October.

China is also refusing to import cargoes because its storage facilities are full (due to low R-LNG offtake)." GAIL for instance imported a cargo at Dabhol on April 22 after it was turned away by privately-owned Chinese player Koyo because of storage trouble.

In India eight spot, short-term and medium-term cargoes which landed in April averaged around $7.50/mmbtu. "India's R-LNG consumers are price sensitive," adds a GAIL source.

"A lower R-LNG price at the burner tip means more customers opt for R-LNG." Much also depends on global oil prices, as spot LNG prices are benchmarked against these.

If oil prices remain below $75-80/barrel through the year, spot LNG prices will also remain low. "At most prices could rise by $ 1-1.25/mmbtu this year," says a source.

"I don't think spot prices will go beyond $9/mmbtu in the next seven months." Bank of America in an April report forecast that spot prices will fall below $6/mmbtu in the second half of 2015.