BAKU, Azerbaijan, June 10
By Leman Zeynalova – Trend:
The persistence of low oil prices since early March should have a significant impact on oil-indexed liquefied natural gas (LNG) contracts prices by Q3/Q4 of the year, as low oil prices filter through the price-setting reference period, usually between 3 and 6 months ahead, Trend reports citing the International Energy Agency (IEA).
“Current forward curves suggest that oil-indexed LNG prices could halve by the beginning of Q4 to a range of USD 4-5/MBtu. European supply is much less impacted by oil price dynamics as most of its pipeline and LNG imports are indexed on hub prices,” reads the IEA report.
IEA highlighted that oil-indexed LNG contract prices did not experience large falls during the first quarter of the year.
The report shows that given their predominance in the import portfolios of Asian LNG buyers, the weighted average LNG import price of China, Japan and Korea only decreased by just over 15 percent y-o-y in the first four months of 2020, to USD 8.8/MBtu.
IEA expects natural gas prices to remain depressed through the summer, amid a bleak demand outlook, high storage levels and continued growth in LNG supply from newly commissioned liquefaction projects.
“The current forward curve suggests that TTF could trade at a discount to Henry Hub through the summer months, reflecting an expected persistent oversupply. Prices are expected to start to recover at the beginning of the heating season, as increasing demand tightens the market and eventually leads to a renewed decoupling of global spot prices,” reads the report.
The combination of continued strong supply growth, mild winter temperatures and the imposition of Covid-19 related lockdowns pushed natural gas prices to lows not seen in over a decade across all major consuming regions.
In the United States, Henry Hub prices in Q1 2020 fell by over 33 percent y-o-y to an average of USD 1.9/MBtu, its lowest quarterly price level since 1999. Prices continued to face downward pressure from growing supply (7 percent y-o-y) and subdued demand due to mild weather conditions, falling to an average of USD 1.75/MBtu in May.
In Europe gas prices on TTF more than halved compared to last year, averaging at USD 2.60/MBtu during the first five months of 2020, impacted by plummeting demand and strong LNG influx. Since the imposition of the first lockdowns at the beginning of March, prices on TTF fell further to USD 1.50/MBtu in May.
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