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

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

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.