Clyde Russell: LNG's Move to Structural Surplus Mirrors Iron Ore, Coal

Reuters

LAUNCESTON, Australia, March 23 (Reuters) - Is liquefied natural gas (LNG) the next iron ore or coal, destined for an extended period of weak prices amid a shift from market deficit to structural oversupply?

Asian LNG prices seem to have already weakened and not just because of lower seasonal demand amid a warmer-than-usual northern winter.

Spot prices have recovered slightly recently, trading at $7.70 per million British thermal units (mmBtu) last week, up from the record low of $6.70 reached last month.

But even this slight recovery leaves Asian LNG prices at levels not seen since 2010 and well below the peak of $20.50 per mmBtu reached in February 2014.

LNG's seasonal pattern is for prices to rise from the third quarter through to the start of the first quarter as demand increases during winter. Then they decline until another rally from around the end of the first quarter to the second quarter ahead of summer demand.

But this pattern didn't materialise at all in 2014.

There was only a tiny upward blip in December interrupting a relentless decline in prices, with LNG losing 54 percent from its February peak to the November low.


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