LNG prices seen wallowing at 10-year seasonal lows by year end

Asian LNG prices will likely be at their lowest, seasonally, in a decade by the end of the year as rapidly rising production outstrips feeble demand, weighed down by a global economic slowdown and the U.S.-China trade war, traders said.

Most trade sources in a Reuters survey forecast spot Asian liquefied natural gas for December delivery to go no higher than $6 per million British thermal units, which would be the lowest for that month since Refinitiv began collecting such data in 2010. <LNG-AS>

They said January and February prices were unlikely to rise much above December's level. Six dollars per mmBtu is lower than the current price of financial LNG contracts, indicating traders see them as overvalued.

Supplies of the super-chilled gas have been boosted in the past year by new terminals in Australia, Russia and especially the United States. This rise has upended gas markets in Europe, bringing continent-wide inventories to multi-year highs.

Spikes in crude oil and European gas prices over the past two weeks failed to alter the bearish mood. Industry sources said low spot buying from Asia and full stocks in Europe were the major reasons for weak prices this winter.

"I don't see a clear premium market this winter. Japan is not growing, India's buying is opportunistic, China was supposed to be the big place, but now it's not. In Europe, once stocks are totally full there is no way this flow continues," one trade source said.

Traders identified potential issues that in a normal year would boost prices - a looming Ukraine-Russia gas dispute, surprise outages, sudden cold snaps like the 2018 "Beast from the East", to name a few. But stocks are so high, Europe could weather such problems.

"You really need a combination of a cold winter in both Asia and Europe and a cut in Russian transit to end the winter with low storage levels," a European-based trader said. "We could survive a strong cut in Russian flows through 2020."

Refinitiv gas analysts sounded a note of caution, however, saying in their winter report that the northwest European market would be tighter compared to last year's unusually mild winter.

JAPAN OVERCOMMITTED

With robust and reliable supply in Asia-Pacific and healthy stock levels, there is no need for big buyers such as Japan, China and South Korea to import spot cargoes from Atlantic producers unless a protracted cold snap occurs.

Some traders noted that in South Korea demand may be boosted by a proposed shutdown, yet to be approved by the government, of more than a dozen coal plants this winter.

Meanwhile, traders are learning not to expect the demand surge from China that in previous years boosted prices to multi-year highs and turned it into the world's second-largest purchaser of LNG.

Not only are Chinese players better organised for winter buying, but the country's exponential growth has the trade dispute hanging over it. China slapped tariffs on U.S. LNG last year, and tit-for-tat trade levies have taken their toll on economic growth forecasts as well as industrial demand.

Neither do traders expect much demand for LNG on the spot market from Japan, the world's top LNG buyer, which is well supplied by its long-standing contracts with U.S. producers.

"Many Japanese buyers are overcommitted to term cargoes. New projects in the U.S. starting up have Japanese term customers, so if these volumes come in I don't see how there will be a need for spot,” a Japan-based industry source said. (Additional reporting by Jessica Jaganthan in Singapore; Writing by Sabina Zawadzki; Editing by Dale Hudson)

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