Cross-posted from LNGworldnews:
Prices of spot liquefied natural gas (LNG) for August delivery to Asia plummeted 26.5% year-over-year to an average $11.365 per million British thermal units (/MMBtu), the lowest monthly average since April 2011, the latest Platts Japan/Korea Marker (JKM) for month-ahead delivery showed. The drop came as supply continued to outweigh demand.
The data reflects the daily Platts JKM for August assessed between June 16 and July 15, and is expressed as a monthly average. The average Platts JKM for August fell year-over-year, and 12.2% month-over-month, despite the start of the traditional peak summer demand season in northeast Asia.
“High inventories resulting from a warmer than expected winter, coupled with the lower end- user demand, have left most buyers in Asia amply covered by their term contracts, reducing the appetite for spot cargoes,” said Stephanie Wilson, managing editor of Asia LNG at Platts, an energy, petrochemicals and metals information provider and a premier source of benchmark price references.
The $1.05/MMBtu fall for August delivery marked the fifth consecutive month of decline since the JKM hit an all-time high of $20.20/MMBtu for March delivery on the assessment date of February 14 2014, Platts data shows. Since then, the JKM has dropped more than 47%.
The August 2014 JKM was the lowest since April 2011, when the average price was $9.961/MMBtu. The daily spot JKM was assessed at $12.075/MMBtu at the start of the August 2014 assessment period and lost $1.05/MMBtu by month’s end to $10.70/MMBtu. This is the lowest daily spot price seen since March 11, 2011 when the JKM was $9.90/MMBtu. The spot JKM had spiked to $10.95/MMBtu on March 15, 2011 in the wake of the Great Eastern Earthquake and resulting Fukushima crisis in Japan.
“The ExxonMobil-led Papua New Guinea integrated LNG project has been seen as a bearish factor on the spot market,” Wilson said. “The added supply has contributed in part to pushing down spot prices. With Korea Gas still long on cargoes and a potential restart of Kyushu’s Sendai 1 and 2 nuclear reactors in Japan looming, sentiment looks bearish in the near term.”
The price of fuel thermal coal – a possible competing fuel – was lower by 3.9% on a month-over-month basis, while fuel oil was up by 0.2% over the June 16 to July 15 assessment period.
So, supply is already crimping prices at the margin, even accounting for seasonality. Not good news for Australia’s overpriced magnificent seven projects, though they are protected by oil-linked contracts for now.
Bizarrely, Shell is talking up further investment. From The Australian:
“The (LNG) demand is there and we very much like investing in an OECD country that is so well placed geographically and in terms of capability, and which we know well because we have been here for more than a century.”
…“Labour productivity, in my mind, is below par…But Australia does have a lot of infrastructure, capability and experience in the industry. It’s a bit of a tight labour market but labour is, in principle, available.
“I still think Australia has the edge and we are keen to invest more in it.”
“In my mind there is some long-overdue thinking of restructure and consolidation at Gladstone that needs to happen,” he said.
“We can be a very relaxed and strategic player in that game and for me, all options are open.”
One very obvious question we might ask is: if it’s all going so swimmingly then why is there a need for restructuring? It’s not just labour inefficiency, it’s massive capital inefficiency as well and that does not bode well for more investment. Then there is this from the US about Gorgon where Shell is a large stakeholder:
The International Transport Workers’ Federation (ITF) has called on the US Securities and Exchange Commission to scrutinise recent apparent misrepresentations made by Chevron regarding the company’s largest upstream development, the Gorgon gas project in northwest Australia.
The ITF argues that Chevron has not provided adequate disclosure about the risks, timing and cost of the Gorgon project. At present Chevron continues to project a mid-2015 completion date for the Gorgon project, which represents the single largest component of the company’s total capital expenditure and exploratory budget.
However, other project owners and customers have signalled they are planning further delay. Chevron is the lead partner on the Gorgon project with a 47.3 percent interest, Exxon-Mobil and Royal Dutch Shell each hold 25 percent each and Osaka Gas, Tokyo Gas and Chubu Electric have 1.25, 1 and 0.417 percent respectively.
The ITF’s concern follows a long history of sudden and suspicious delay announcements by Chevron relating both to Gorgon and other projects.
Not just a war of words?
