(MENAFN- Gulf Times) Oil's slump is set to extend the biggest drop in liquefied natural gas costs in five years, spurring demand in emerging Asian economies.
LNG
prices in Japan, the world's biggest buyer of the fuel, will probably plunge 35% in 2015 and Indian costs will decline 33%, according to Energy Aspects Ltd, a London-based consultant. Costs in Asia will this year average below $10 per million British thermal units for the first time in four years as new projects in Australia and the US boost supply through 2016, Bloomberg New Energy Finance said.
Most LNG in Asia is linked to crude costs with a time lag of several months, so Brent's 49% drop in the second half of 2014 hasn't fully filtered into prices. Global demand for the gas chilled to minus 170 degrees Celsius (minus 274 Fahrenheit) will rise 9.8% this year amid increased imports by India and Southeast Asia, after climbing 0.5% in the first nine months of 2014, according to Sanford C Bernstein.
"We are already seeing, at current prices, renewed interest from Indian buyers," Laurent Vivier, vice president for strategy and market analysis at Total Gas & Power, said on Monday by e-mail. "There is some flexibility in the demand as well. When prices fall to current levels, it creates additional demand."
Average LNG prices in Japan fell 17% in December from a year earlier, the biggest drop since 2009, to $13.68 a million Btu, World Bank data show. Spot prices dropped from a record in February amid milder weather and full storage facilities in northeast Asia, particularly South Korea, Wood Mackenzie Ltd said in a January 7 report. Northeast Asia spot cargoes fell 15% to $7.50 in the week to January 26, according to assessments by World Gas Intelligence in New York.
China, India and Southeast Asia accounted for 15.5% of global LNG demand last year, up from 12.2% in 2013, and will be the driving forces of incremental buying by 2020, BNEF said in a January 5 report. Japan's share shrank to 36.7% from a record 37.2%, while South Korea's fell to 15.5% from 17.1%.
India, the world's second most-populous country, needs LNG to fill a gap between increasing demand from fertiliser producers to power plants and declining domestic output, according to Bernstein.
The country's total LNG imports may increase by 7% to 15mn tonnes this year, rising to 38mn tonnes in 2020, according to BNEF.
"LNG is a way forward, we are looking at setting up many more terminals, activating the existing terminals," Piyush Goyal, the country's power and coal minister, said in a January 23 interview in Davos, Switzerland. "We hope that in the days to come we will be able to reignite the gas business in India."
LNG under long-term contracts can cost as much as 90% of crude, with spot purchases as much as 15% lower, according to Vitol Group, one of the biggest independent traders of the fuel.
Brent, a global benchmark, traded at $49.14 a barrel, the equivalent of $8.44 a million Btu, yesterday compared with a high of $115.71 in June amid a global glut.
India's domestic energy prices are regulated, which limits LNG imports at higher prices. About 42% of its purchases are spot and short-term deals, according to Petronet LNG Ltd, which operates two of the country's four terminals. Gas accounted for 9% of India's electricity mix last year, while coal was 60%, according to the nation's power ministry.
Gas on a delivered basis would probably need to be less than $5 or $6 longer term to compete with coal in India, David Thomas, Vitol's head of LNG trading, said on November 24 in an interview. Pipeline constraints also limit imports, he said.
LNG prices will average $8.70 a million Btu and $9.10 this year in India and Japan, respectively, Energy Aspects said on Tuesday in a report.
China's natural gas demand will increase 9.3% to 200bn cu m this year, with LNG and pipeline imports rising 10% to 65bn cu m, China National Petroleum Corp said in an annual research report yesterday.
While lower LNG prices make the fuel more affordable for China and India, it's still more expensive than Chinese coal, Laszlo Varro, head of gas, coal and power at the International Energy Agency, said on January 8 in Beijing.
"If oil prices remain low, say below $75, into the future, this is a huge change for all Asian LNG importers in terms of savings," Leigh Bolton, managing director of Holmwood Consulting Ltd in Surbiton, south of London, said by e-mail on January 8. "India is probably the best example, as they are critically price sensitive against both domestic gas and also other fuels, such as naphtha."
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