LNG & Gas Markets Experience Bull Run
October 2018
Over the next 18 months global prices are expected to correct, particularly under the influence of increased pipeline supplies into Europe. In the US, the forecast price increase is in response to new liquefaction capacity that will be coming online in the US, drawing on domestic stocks. East Asian prices are forecast to increase by 8-15%, but upside risk remains.

Northeast Asian prices could be at the higher end of this scale due to limited terminal storage capacity, imposing the requirement for continued winter imports.

Into this context, AME estimates that around 52Mtpa of new and renewed LNG contracts came into effect in 2018. Last month, LNG prices for North Asia were firmly higher, peaking at US$11.77 in mid-September before easing to US$11.16 at the end of the month.

A rise in US gas supply to 2.3Bcmpd and unseasonably high natural gas prices in Asia, Australia, Europe and North Asia contrasted against a relatively flat Henry Hub average price of just US$2.83/MBtu in the September Quarter.

In September, oil-linked LNG contract prices were supported by Brent oil prices ranging US$77 to 83/bbl. AME's Composite Asian LNG Spot price averaged US$11.31/MBtu in September; 7.0% higher than the August average of US$10.57/MBtu. Notably, all major gas and LNG price benchmarks rose throughout the month. Despite this, the arbitrage window from West to East remained open to traders due to the price difference of around US$2-3.5/MBtu between Western Europe and Far East Asia where prices persisted above US$11.00/MBtu. AME's European Composite rose to US$9.71/MBtu by September 28 and averaged US$9.37/MBtu for the month, 13% higher than in August.

Short term Chinese LNG imports continues at record levels for the first eight months of 2018, up 47.8% yoy; the annualised rate suggests that China in on track to import 49Mt in 2018. State-owned operator of terminals in Northeast China, Sinopec, completed the third of four 160kcm tanks at Tianjin as it prepares to receive cargos ahead of an expected winter shortage. It is reportedly booking 1,600 trucks to deliver LNG from Southern terminals in Guangzhou into northern provinces. LNG Asian futures are foreshadowing a price of US$11.7/MBtu to US$12.80/MBtu for October to November delivery, which indicates arbitrage opportunities over the coming winter.

In terms of new supplies, the feed gas now flowing into Ichthys LNG and the imminent start of exports from Shell's 3.6Mtpa Prelude is foreshadowing partial easing of East Asian supply deficits. Foreshadowing a potential start, Sabine Pass Train 5 entered its commissioning stage and will add to global supply within months. In the US state of Georgia, the 2.5Mtpa Elba Island LNG was hit by a delay to its start-up, which is now expected in the December Quarter.