The coronavirus pandemic has a harsher impact on Asian LNG prices than on Brent crude futures, according to Clyde Russell, an energy columnist at Thomson Reuters. According to him, the coronavirus consequences in Asian LNG prices are likely to linger for the longer term. Spot LNG prices for delivery to North Asia plunged to a new record-low of $1.95/MMBtu in the week to April 24, marking the first time they dip under the $2 mark.
This represents a 71.3% decline from a peak of $6.80/MMBtu set before the winter in October 2019. This is a steeper decline than the 70.1% drop in Brent crude oil futures which fell to $21.44/barrel on April 24 from this year’s peak of $71.75/barrel on January 8.
Asian LNG prices are now close to US natural gas prices of $1.75/MMBtu for delivery to the Henry Hub pipeline recorded on April 24. Adding liquefaction and the shipping costs to China puts the current break-even price to around $5.56/MMBtu, well above the prevailing spot prices.
The break-even point for other suppliers such as Australia, Malaysia, and Indonesia is also above the current spot prices. However, Australian shipments, for instance, incur a smaller loss at current spot prices compared to cargoes from the US.
The LNG market is also facing an oversupply and lack of demand, but LNG exporters have no coordinated action to cut production like what OPEC+ does. Japan is estimated to offload 5.13 million tons of LNG in April, down 7.9% year-on-year to the lowest since January 2013. However, China’s intake is expected to rise to 5.84 million tons from 4.15 million tons earlier as it resumes the economy. Meanwhile, intake by South Korea is expected to be steady at 3.44 million tons from 3.45 million tons a year ago.
Demand for LNG in Asia is likely to recover, but the supply length is expected to linger for an extended period. It should hurt the longer-term outlook for thermal coal and hence, encourage more coal-to-LNG switches. At the same time, LNG project developers, particularly in the US and Australia, are likely to defer their final investment decisions.
