NatGas Bloodbath Accelerates Amid LNG Glut Worse Than Oil

Tyler Durden's picture

With Nattie down 6% in early trading, the most in 2 months, pressing to new record lows...

 

OilPrice.com's Nick Cunningham warns, while the glut in oil is expected to continue for the next year or so before balancing in late 2016, the pain for liquefied natural gas (LNG) could be just beginning...

Building LNG export terminals is a long-term proposition. It can take years to develop a greenfield project, bringing a lump of new capacity online long after the project was initially planned, exposing developers to the possibility that market conditions could change in the interim. It is not unlike a conventional oil project, such as an offshore well, which also can take years (as opposed to a much shorter lead time for shale drilling).

But there is a major difference between oil and LNG: the market for LNG is much smaller and less liquid (no pun intended). In other words, a handful of new LNG export terminals can significantly alter the supply/demand balance.

That is exactly what is currently unfolding. Several years ago, spot prices in Asia for LNG spiked, particularly following Fukushima nuclear meltdown. Japan’s demand for LNG skyrocketed. At the same time, the shale gas revolution was unfolding in the U.S., and rock bottom prices opened up a window of opportunity to ship American gas to Asia. But it wasn’t just the U.S. – LNG export terminals proliferated around the world, particularly in Australia.

There were so many projects planned at the same time, and the first batch started to come online this year, with many more nearing completion in 2016 and 2017.

The rush of new supply is hitting the market all at the same time. Not only would such a rush in supply have pushed down prices on their own, the timing is actually really unfortunate for LNG exporters. Economies in East Asia are slowing, leaving a shortfall in demand. Japan, the largest LNG importer, is seeing its economy stagnate. China’s growth has slowed significantly.

As a result, JKM spot prices – the LNG marker for East Asia – are trading at $7.28 per million Btu (MMBtu) for December delivery, down nearly two-thirds from early 2014 prices.

Many LNG exporters have their cargoes signed up under long-term contracts on fixed prices. But usually not all of a given supplier’s capacity has secured buyers. The leftovers are sold on the spot market. With prices so low, spot sales are garnering much lower revenue.

Next year may be worse than this year, and 2017 could be yet even worse. "From having been an import basin, Asia will next year be going to have excess supplies and worse so in 2017," David Hewitt of Credit Suisse told Reuters.

New export terminals will add 14 to 15 million tonnes of annual LNG capacity (mtpa) to the spot market over the next year. But that extra supply is running into a wall of stagnating demand. Japan’s LNG imports dropped by 12.8 percent in November, year-on-year. South Korea’s level of imports are at their lowest levels in six years.

Credit Suisse’s David Hewitt says that spot prices could drop to $5/MMBtu over the next few months, and even dip to an “eye-watering low” of $4/MMBtu at some point in 2016.

Again, oil markets are expected to see the supply overhang come into balance on a much shorter time horizon, perhaps by late 2016 or 2017. But the LNG market, with a much smaller demand base around the world, has much bigger problems. New regasification terminals will add new demand for LNG over the next few years, and demand is expected to jump by 50 mtpa by 2020. That is a substantial increase in expected consumption. The problem? New supplies will add 120 mtpa in LNG export capacity over the same timeframe, dwarfing even the most bullish cases for demand.

The excess supplies are beginning to change the LNG trade. The spot market is growing dramatically, as extra cargoes are resold to willing buyers. This is undermining long-term contracts, and also starting to change the practice of linking prices to crude oil prices. Singapore is launching an LNG futures market, which will accelerate these forces and bring more transparency to the trade. The market is becoming more liquid, offering more opportunities for buyers, at lower prices. That is great for the LNG consumer.

But the glut, set to worsen next year and the year after that, is terrible for gas producers or LNG exporters.

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LawsofPhysics's picture

Hopefully diesel will go on sale again.  My business needs as many consumable calories as we can get.

 

-.-'s picture

Here in Austin, Texas you can watch your unproductive tax and utility payment dollars go into action within days: I'm talking the transfer of value from payments received from citizen unto the development of "Hey, that's cool (and expensive to live there, walk on.)" in the congested central zip codes in the form of tax subsidies and breaks! 

 

Oh! Or, just check out the website for city utility payments for the fastest growing metropolitan city in Texas, the silver bullet of the southwest: 

https://coautilities.com/wps/portal/occ/occ/anonymous/!ut/p/c5/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gff0NPDyMLIwsDbydXA09fT9MQR0MLAwNPE6B8pFm8AQ7gaEBAdzjIPiQVFgZOLgaeribGgcGeAUYG7mYQeTzm-3nk56bqF-RGGGSZOCoCACZZqCk!/dl3/d3/L2dBISEvZ0FBIS9nQSEh/

But, good luck logging into the portal that is supposed to direct you to your account payment page. Furthermore, good luck with calling in for assistance; if you get an answer, it is usually a young foreigner (outsourced voice service) with poor grammar or a middle-aged individual who does not give a fuck as they have a desk job, twenty-one more years of 'work', the idea of a retirement package from the city, television, religion, and family.

troubledasset's picture

And I suppose this rant is supposed to make some sort of logical sense?

-.-'s picture

Only when viewed from behind your SARC-goggles buddy.

ThanksChump's picture

That really needs to be up around $8.

All the producers are locked in to contractual production quotas, so they're borrowing money to meet payroll to transfer gas to transmission services who charge more than this to push it into their pipelines.

Contractual production guarantees, it seems, were a huge mistake. The transmission services are making an even bigger mistake by scalping producers.

It's magnificent.

FireBrander's picture

Dec 14, 2015 - todays high 45...normal high 27...it's been like this for months...I've barely had to run the natgas heat...with many days, in Nov/Dec in the 50's and a few 60's..,.only 2 real months of "winter" left...forecast for Christmas Day...50!

Seek_Truth's picture

Newsflash for you winter hasn't even begun yet it starts on December 22 this year.

FireBrander's picture

Around here, winter starts when you have to wear a heavy coat and everything is dead..."Winter" started a month ago...fuck those meteorologists and their calendar.

venturen's picture

and yet my electricity bill will jump 10% per year again...as the cronies extract more renewable fraud money from electrity generated by Nat. Gas.

drivenZ's picture

LNG does not equal NG. Although NG is the lowest it's been in 3 years. So maybe you just need to get a new electricity company. 

 

lunaticfringe's picture

Get a new electricity company? Where the fuck do you live? In my America we have one electric monopoly per region.

ThanksChump's picture

Yours is a misinterpretation of price-performance economics. An iPhone doesn't go on sale every time bauxite futures dip.

Buy an old alternator from a junk yard.

Put a crank and a meter on it.

Crank out a KW for one hour. Does 14 cents still seem like a lot, or is the value of a KW/h actually quite reasonable?

Liberal Keynesians, sheesh.

troubledasset's picture

And here is where I think the above article fails: LNG exports should globalize NG trading to a greater extent. I would imagine that would lead to lower prices in Asia and Europe and higher prices in North America. Also, pipelined exportation to Mexico is ramping up. And, in the US, rig counts are falling considerably. Add to that a wave of defaults/bankruptcies and we should see domestic production declines not only from the tight gas basins but also in the form of associated gas from the oil basins.

FireBrander's picture

~30% of our electricity is coming from wind and they just announced the first price increase in a decade…figure it will cost me about $25 a YEAR!

Electricity is HEAVILY REGULATED by the Government...Power Co's have to ASK THE GOVERNMENT if they can raise prices...yet the price is cheap and barely inches upward...along with being 99.99% reliable...wonder if an "unregulated Private Company"...given monopoly control OVER SOMETHING I MUST BUY...could deliver the same deal?

Maybe we should apply this model to ....wait for it...health care?

PS> Yes, I know wind receives a Fed subsidy...but it's not because wind is "unviable" or "uncompetitive"...it's because CHINA was/is DUMPING wind equipment in a attempt to DESTROY the USA's wind equip manufacturing industry...and our "Glorious Leaders" in Congress decided to SAVE AN AMERICAN INDUSTRY via a subsidies/tariff combo rather than just apply tariffs on the DUMPED Chinese goods...and, as you would expect...with REPUBLICANS in CONTROL..they want to remove the Subsidies, and NOT apply Tarrifs to the DUMPED CHINESE GOODS...and we're ON OUR WAY to DESTORYING MORE AMERICAN JOBS...FUCKING ASSHOLES!

FireBrander's picture

Compare, Contrast, and pull your head out of your ass:

 

$700,000 = Nebraska Public Power District CEO Compensation

$66,125,208 = UnitedHealth Group Inc. Stephen Hemsley, CEO.

Government Controlled electric power is “affordable” while “Private Enterprise” Health Insurance is BREAKING YOU!

Seek_Truth's picture

I see you like to make up statistics- actually only about 3% of our energy in the US comes from wind, also there are 20 deregulated states where the rate caps are off and electric companies can charge whatever they want in those states- rates have come down since deregulation they haven't gone up!

Next time do a fact check before you post such nonsense.

https://en.m.wikipedia.org/wiki/Electricity_sector_of_the_United_States#...

FireBrander's picture

I see you're a RightWingNutJob that can't stand the thought of not serving a corporate master:

It's 4% from wind and that's the US moron...some states are pushing 40% wind powering THEIR state!

Little more fact checking...

"among the 24 states (not 20) that have enacted electricity deregulation plans, results are mixed. Rising prices, skyrocketing demand, and limited supply in some areas have raised questions about the viability of deregulation. At the same time, Congress has been unable to agree on a measure to introduce competition to the electricity market nationwide."

"Pennsylvania’s deregulation experiment...500,000 consumers...were saving about $10 per month"...BUT, they still had the Public Utility option...the Private company had to lower the price...when the ONLY OPTION is the PRIVATE OPTION...and it's "Deregulated"...what will happen to the price?

https://www.opensecrets.org/news/issues/electricity/

Report: Wind could supply 40 percent of Iowa energy by 2020

http://www.desmoinesregister.com/story/money/agriculture/2015/07/16/wind...

Seek_Truth's picture

Lol, I see you're a statist fool.

I make a living as a consultant in the commercial energy industry, and alternative electricity suppliers are typically 1/2 to 2 cents lower than the utility in all the deregulated states.

I have clients that save as much as $70,000/year specifically because of energy deregulation, and can't wait for all states to deregulate so that similar savings can be achieved. Even small businesses are saving thousands annually due to deregulation.

Wind power doesn't work when it's not windy, and when it does work it kills millions of bats and birds annually.

Also, just because a state makes "plans" to deregulate, doesn't mean that they have put it into place yet.

Here's a map of the 20 states that currently allow customers to choose their electricity supplier:

http://www.alliedpowerservices.com/deregulated-states.shtml

You are an idiot and a statist- but I repeat myself.

Edit: there NO states that even come close to generating 40% of their electricity by wind- you are not entitled to make up your own facts:

Compare this:

http://www.awea.org/Resources/Content.aspx?ItemNumber=5059

With this:

http://www.ipsr.ku.edu/ksdata/ksah/energy/18ener7.pdf

Progressives and statists make up their own "facts"- it just what they do.

FireBrander's picture

..and "Consultants" are often overpaid "experts" that are mostly full of shit...

 

Lowest Electric Prices:

1. Washington - NO deregulation

2. N. Dakota - NO deregulation

3. Idaho - NO deregulation

4. Louisiana - NO deregulation

 

Highest Electric Prices:

48. Connecticut - Deregulated

49. Alaska - NO deregulation

50.New York - Deregulated

51. Hawaii - NO deregulation

 

Looks like REGULATION WINS!

https://wallethub.com/edu/most-least-energy-expensive-states/4833/

 

PS. I don't think it's fair to put Ak and HI in there because of their geog and locations...everthing is expensive there.

 

Highest Electric Prices minus AK and HI:

45. Delaware- Deregulated

46. Texas- Deregulated

47. Florida - NO deregulation

48. Connecticut - Deregulated

50. New York - Deregulated

...AND....Regulation...WINS AGAIN...

Shouldn't the states with the most "Regulation" have the highest prices?

 

FireBrander's picture

I'm from the Government, and I'm here to help...

Equally true:

I'm a consultant, a paid "expert", and I'm here to tell you the truth...that you want to hear...for a fee...

 

~~~~~~~

Our city "leaders" paid $50,000 to a consulting firm in order to determine whether or not a monopoly casino operation would be profitable...6 months later, the "consultants" came back with a 400 page report, that when summarized, said "YES"!.

 

Seek_Truth's picture

Yes, because the gubmint squanders tax money on one boondoggle after another. It's money obtained through taxation at the point of a gun- why would they care if is spent wisely?

On the other hand, businesses are careful to make sure their hard earned money is spent wisely. That's why I have hundreds of repeat clients- because they aren't stupid- unlike the gubmint.

Statist = FAIL.

FireBrander's picture

Consultants have "repeat clients' because those clients NEED A FALL GUY should it go wrong...

Gone are the days where executives make decisions and implement...now they're too scared to make a move without a "Consultants" stamp of approval so that if the shit hit's the fan, they can blame you and then you'll weasle out of it by saying you "followed industry standards" in coming up with the "expert advice"...total bunch of bullshit.."Consulting" profession is as fake and worthless as accounting.

Seek_Truth's picture

What you fail to understand is that the prices you are looking at on that link include the utilitiy distribution fees (which are still regulated in every state) along with the electricity supplier charges (which are deregulated in the deregulated states).

Interestingly- supply charges have come down since deregulation and the regulated utility distribution charges have gone up drastically - so chock up another loss for your drawing the wrong conclusion from the data.

I repeat- the deregulated supply costs have decreased since deregulation, and the regulated utility distribution charges have increased dramatically since deregulation.

In other words- You get an F.

FireBrander's picture

Only an "expert consultant" could look at data showing the 4 cheapest states and make a case that those are really the 4 highest because of blah, blah, blah and the 4 most expensive are really the 4 least expensive because of "deregulaion".

Ok, you win...a deregulated Monopoly/Oligopoly results in the lowest energy prices possible; far better than Regulated Utilities.

PS> Thanks for solidifying the "Consultant" stereotype...next time maybe you shouldn't drag down the industry by trying to use it to bolster your "expert" opinion on something you're more wrong than right about...

FireBrander's picture

"NO states that even come close to generating 40% of their electricity by wind"

I said PUSHING 40%.

"Making up more than 25% of the state's generated electricity, Iowa is a leading U.S. state in wind power generation... By 2020 the percentage of wind generated electricity in Iowa is expected to reach 40 percent.[6]"

https://en.wikipedia.org/wiki/Wind_power_in_Iowa

PS> WIKI needs to be updated...they're expecting hit 40% in 2017!

"MidAmerican Energy's recent announcement of another 1,050 MW of wind projects and the Rock Island Clean Line High Voltage DC project to carry 4,000 MW of wind energy to east coast markets will result in over 10,000 MW of installed wind energy capacity.  This should occur by 2017 which is well ahead of IWEA's goal of 10,000 MW by 2020!"

http://www.iowawindenergy.org/whywind.php

For a "Truth Seeker", you sure have a STONG tendancy for denial.

FireBrander's picture

Iowa is at 28.5% wind energy..WIKI seriously needs an update...ESPECIALLY if that's where "Consultants" are getting their "expertise" that they sell to clients...pathetic.

FireBrander's picture

Scroll down and read ADR's comment if you truly "Seek_Truth"....or is the "Truth" you seek that which fits your Rightwing brainwashing?

Barrack Chavez's picture

The commodity that has by far the greatest amount of over-supply is network "news" media. Lots of zombie papers, TV channels, radio, etc.

Wonder when the CNBC and Bloomberg TV talking heads will figure this out...

yogibear's picture

Young people are cutting cable. Saves a lot when you have to pay those student loans.

Dr. Spin's picture

They DO produce prodigious amounts of methane...

Spoctor Din

TEOTWAIKI's picture

network "news" media

A lot of wind power to harvest there.

yogibear's picture

Subprime autos should be reaping it's defaults. The Fed's asset inflation couldn't last forever,

Running out of other people's money.

Dr. Spin's picture

Why is freaking propane so freaking expensive???

Spoctor Din

pods's picture

Expensive?  I just filled up a 100 lb tank for like 50 bucks. That is the same price I was paying like 4 years and upteen trillion in QE Dollahs ago.

pods

Anopheles's picture

I know this summer in western Canada the wholesale price for propane was (for shot times) NEGATIVE.   Meaning the producers were paying to have propane hauled away.... 

rsnoble's picture

I'm sure liking the propane prices this winter.   Us people out here in the stix refer to the propane tank as the 'pig'.  We burn wood, too, but with gas this cheap it makes things so much easier.  Especially with this awesome elnino weather.  No wonder the fkheads picked this year to cry about global warming bullshit. 

adr's picture

Will I pay $2 per MCF like I did twelve years ago before utility deregulation?

In 2003 my cooking gas bill for my apartment was around $8 every month. $5 of that was the base charge. Then deregulation hit and the base charge was changed from $5 to $25 and a $.75 per MCF delivery charge was added because Dominion was no longer "supplying" my gas.

Because there were now hundreds of "gas suppliers" vying for contracts to sell, the contract prices went through the roof. What was a $2 per MCF charge jumped as high as $4.30. The delivery charge then went to $1.50. What was an $8 monthly bill ended up going to $33. I turned off the gas and used an electric griddle and toaster oven.

I remember locking in a three year contract at $4.75 per MCF delivered in 2009. It sucked when the contract dropped to $3.85, but was great when it jumped to $7.50.

Natgas wholesale might be at a record low, but retail prices paid by consumers sure as hell aren't.

truthserum's picture

here in Michigan, even low level Gasmen make over hundred thousand dollars a year. My dad retired from the local utility and he always complained about how much money the gas company wasted. I told him there's a reason for that, when they go in front of the public service commission they show them their expenses for the year and the public service commission figures they need to make 10 or 20% profit on top those expenses and that's how they base the rates. We live in a feed them, you're either a peasant or you're one of the connected people to government.

SpanishGoop's picture

Just waiting for the moment they will pay me for buying LNG.

 

buzzsaw99's picture

CHK: P/E = N/A

can't wait to see the state budget next year

wmbz's picture

Got a letter from my power company last week... "We are adjusting your bill (which means up) to better serve you with "clean" technology.

I was just fine with my dirty technology!

Anopheles's picture

Just wait.  You are going to get hit with more "carbon taxes" on top of paying for your new "clean" technology.  

Dragon HAwk's picture

Gosh if they coudl find a nice portable way for every homeowner to supplement their heat, we could save a lot of money for the people who heat with electric...   good thing there is plenty of innovation in this phony profit market

Pol Pot's picture

The supply side is not what is driving down natgas price....it the lack of industrial demand. Since many industrial....read manufacturing...users have been moved off shore the demand is drying up. Add in a make believe..to the fcken FED that is.....recession and the price will continue to drop as there are no savior in sight.

Catullus's picture

Check out north hub power prices for December. Saturday averaged $5.28/mwh. Wow

THE DORK OF CORK's picture

Anyone catch the massive fall in Oz Nat gas consumption.

 

The IEA claim a 40% drop in sep consumption and a 17.5 % drop in year so far.

 

LNG export facilities drive up the cost of energy in surplus countries causing a depression.

1033eruth's picture

Go LONG natural gas utilities because you know damn well prices aren't going to drop for consumers, especially the large muti state corps.