Worst winter likely for LNG as Asian prices to stay at seasonal low

Liquefied natural gas (LNG) spot prices in Asia have dropped to seasonal lows and could remain weak on expectations of a mild winter depressing demand for gas for heating, trade sources and analysts said.

A slowdown in China’s coal-to-gas switch amid a weaker economy is also curbing purchases and weighing on prices, traders said.

Spot LNG prices are currently at their lowest for this time of the year in a decade since Reuters first started publishing the price. LNG-AS

“Milder winter weather is forecast across northeast Asia. Although long-range forecasts are highly uncertain, the prospect of milder weather and weaker demand is weighing on market sentiment,” said James Taverner, director at research and consultancy firm IHS Markit.

In Japan, electricity prices fell to a six-month low last week as temperatures held above average for this time of the year, while clear skies after a wet October increased solar supplies.Japan, the world’s largest LNG importer, is expected to have warmer-than-usual weather through January 2020, the weather bureau said in late October.

Imports of the super-chilled fuel into Japan had already dropped by 3% in October from the previous month, the first time since 2014 that shipments fell in October, Refinitiv shiptracking data showed.

“There haven’t been that many import tenders from Japan, so that’s a sign that their demand is not so high,” a Singapore-based trader said.

In China, the world’s second biggest LNG importer, temperatures are up to 3 degrees Celsius higher than normal in some regions, according to the Ministry of Emergency Management.

The warmer weather combined with a weaker Chinese economy could also weigh on spot prices, traders said.

The potential slowdown in demand is expected to further dent earnings of gas producers, some of whom have reported lower quarterly revenues due to subdued energy prices.

Still, there could be some upside in demand from South Korea where the government is planning to temporarily stop power generation from up to one quarter of the coal-fired power fleet from December to February, and up to half in March, next year, which could support LNG consumption, Taverner of IHS Markit said.

The global LNG supply glut due to new projects coming on stream this year could hit prices during summer next year, he added.

“Fundamentals point to summer 2020 spot prices potentially dropping even lower than experienced in 2019,” Taverner said.

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