Spot LNG may peak at $16.90 this year, says Goldman Sachs

Bloomberg/Singapore

Spot prices for liquefied natural gas may peak this year at an annual average of $16.90 per million British thermal units before expanded supplies pull down the cost of cargoes, Goldman Sachs Group said.

LNG may rise by $1.80 in 2013 from an average of $15.10 in 2012 on tightening supply, Samantha Dart, a Goldman Sachs analyst in London, said in report e-mailed yesterday. After 2016, an expansion of liquefaction capacity in Australia and North America will pressure prices lower, according to the note.

“The recurring spikes in Asian LNG, which have taken Japanese LNG prices more than five times higher than US gas prices, have been supported by an inability of supply growth to keep up with demand, especially after the March 2011 earthquake and tsunami in Japan,” Goldman Sachs said.

The price of LNG spot cargoes delivered in four to eight weeks rose to $17.95 in northeast Asia, World Gas Intelligence, an energy research company, said on January 14. US gas futures for February delivery traded as low as $3.244 per million British thermal units in electronic trading yesterday on the New York Mercantile Exchange.

LNG replaced nuclear power as Japan’s primary power fuel as safety checks following the 2011 disaster at Fukushima cut the number of reactors operating to just two. The country received 30% of its electricity from the 50 reactors operating before the incident.

Japan’s additional LNG demand in 2012 was 15bn cu m because of Fukushima, Goldman Sachs estimated. LNG is natural gas cooled to liquid form and shipped to regions where natural gas pipelines aren’t practical.

Nuclear outages in South Korea and a Brazilian drought that cut the country’s hydropower output, provided additional demand for immediate LNG, or spot cargoes, Goldman Sachs said.

Higher prices in Asia and South America have encouraged LNG sellers to divert shipments away from Europe, the Goldman Sachs report said. Atlantic Basin suppliers such as Trinidad and Nigeria also redirected supply to Asia, which increased freight rates and reduced the pool of available ships.

Spot LNG prices are forecast to drop in 2014 to $14.20 per million Btu as the global LNG tanker fleet increases and Japan restarts more reactors, Goldman Sachs said.

Japan’s new nuclear regulator is scheduled to announce safety standards for plants in July. The agency, which released a first draft last week, may allow reactors to restart before they are in full compliance of more stringent measures as long as they commit to implementing all new guidelines, Goldman said.

“This would likely lead to a modest decline of near 3bn cu m in Japanese natural gas consumption in 2014, which would, in turn, contribute to alleviate the tightness in global LNG markets,” said Dart.

Freight rates may decline because of increases in the LNG tanker fleet and consequently reduce the delivered price of spot cargoes in Asia, Goldman Sachs said.

The company estimated freight rates between $108,000 a day and $119,000 a day in 2013, and $80,000 a day to $100,000 a day next year.

Morgan Stanley booked an LNG carrier earlier this month at a rate of $140,000 a day, Bloomberg reported.

Asian spot LNG prices could drop below $12 per million Btu in 2015 when more liquefaction capacity is added in Australia, Goldman said.