Vitol's head of LNG expects supply shutdowns due to market glut
Vitol Group’s head of liquefied natural gas trading said the outlook was bleak for LNG in the short term due to an “incredibly” oversupplied market, which would lead to some output shutdowns.
“We had record imports of LNG into Europe. Three years ago we saw 63 cargoes in one month, in March we see 125 cargoes, April and May we expect 150 and 170 cargoes... This is really unprecedented,” Pablo Galante Escobar, Vitol’s head of LNG, told the FT Commodities Global Summit in Switzerland.
“We said before that we expect a battle between the U.S. LNG and Russian pipelines. We believe that is happening now but it is being joined by LNG from the Middle East, Africa that is not finding the homes in Pakistan, Bangladesh or China, where the winter was mild but there are other factors, such as excess production.”
This week, spot prices for LNG cargoes to be delivered into northeast Asia in May fell to a nearly three-year low of $4.30 per million British thermal units (mmBtu) as buyers are shunning cargoes and re-directing them to Europe, trade sources said.
In Europe, the Dutch front-month gas price is trading at around $4.90 per mmBtu on Wednesday, with prices holding a premium over Asia since last week.
Lower-than-expected LNG demand and a drop in prices in Asia have made Europe a top destination for LNG produced in the Atlantic basin since October, a drastic change from previous years.
Several Asian companies, including South Korea’s KOGAS and China’s PetroChina having been selling cargoes from their U.S. and Russian offtake, respectively, to Europe in the past several months.
Several trade sources said that prices would need to go down by around $1 per mmBtu to cause shutdowns, but admitted that the costs for delivery from the United States to Europe look “not very healthy.”
U.S. producer Cheniere told Reuters earlier this year, however, that its customers have the contractual right to turn down volumes and pay a fixed fee for processing. (Reporting by Julia Payne; additional reporting by Ekaterina Kravtsova in London; editing by Nina Chestney)
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