Prices for LNG Heading to Japan Drop 42.5% Year Over Year for May
How low can world LNG prices go? One of the potentially important markets for U.S. LNG is Japan. Historically when drillers would get $3-$4 per thousand cubic feet (Mcf) here at home, they could easily get $8 or more per Mcf in Japan–if they could just get the gas loaded onto ships and get it there. Hence facilities being built like Dominion’s Cove Point, Maryland, which export gas to Japan (and India). But something happened on the way to the LNG party. Last December Platts reported LNG deliveries to Japan and Korea were fetching $7.40/Mcf (see Platts Says LNG Heading to Japan & Korea Fetching $7.40/Mcf). By February, that number had tumbled to $5.34/Mcf (see LNG Exports to the Rescue in Northeast? Not So Fast). That number has fallen even more. Today LNG going to northeast Asia is only fetching $4.24/Mcf–the lowest in seven years. Ouch. Why are the prices tanking in Japan and Korea?…
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In the natural gas world there are two seasons: winter (when you use natural gas) and summer (when you “inject” or store natural gas). The “winter strip” goes from November to March, and the “summer strip” runs from April through October. Storage levels are a key factor in the pricing of natural gas. Economics 101: the price for commodities like natgas is purely a function of supply and demand. If you have more supply than demand, the price goes down. In the northeast part of the country we just came through the mildest (temperature-wise) winter in a generation. We used a lot less natgas than we normally would. That means the gas sitting in storage didn’t get drawn down nearly as much as it usually does. That’s what you would expect, and the U.S. Energy Information Administration (EIA) has confirmed it. We ended the winter heating season at the end of March with “record high levels” of natgas sitting in storage. And now we begin the process of storing more. If all other factors remain equal–meaning there’s no new or sudden increase in demand this summer–it doesn’t take a genius to figure out how record high storage levels will affect the price. Here’s the EIA with their latest on storage…
In an interview on CNBC, Chevron chairman and CEO John Watson said some interesting things. Among them: Watson believes the oil markets will “balance out” (price/production-wise) in the “coming months.” He also spoke about the prospects for LNG, saying it’s “maturing” and we are entering “a new phase”…