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Crude Economics
Asia Rejoices at Low LNG Prices

The price of oil is less than half of what it was last June, and that’s producing no shortage of knock-on effects. The price of liquified natural gas for Asian buyers is down significantly in recent months, and looks set to drop below $10 per million Btu for the first time since 2011. Bloomberg reports:

Spot and term cargoes will be priced lower this year from 2014, according to the Oxford Institute for Energy Studies, Bloomberg New Energy Finance and Holmwood Consulting Ltd. LNG prices will likely be “single digit” even as oil prices recover from their collapse, said Jonathan Stern, a senior research fellow from the U.K.-based Oxford Institute. […]

“The outlook for spot prices in the next few months remains weak as storage and incremental supply seem sufficient to cover seasonally higher demand,” BNEF Asia Pacific analysts including Ashish Sethia wrote in the report.

Natural gas prices are often linked with oil markets, so the crude price plunge is having a depressive effect on the trade of LNG. That’s especially good news for Japan, which has paid dearly for a heavy reliance on natural gas imports after it shuttered its nuclear reactors in the wake of the 2011 Fukushima disaster.

But a drop in LNG price could affect the calculus behind America’s slow move to open its own natural gas production up for export. When Asia was paying some $15 per million Btu, there was a price incentive for producers to liquify and ship their product abroad—domestic prices are hovering around $3 per million Btu, and even after the liquefaction and transportation costs have been factored in, shale producers saw a clear profit motive in selling outside the United States. Declining margins are throwing a wrench in those plans, even as LNG export terminals prepare to come online later this year. We’ll be watching.

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  • Josephbleau

    Profit is Price net of cost and tax. How can it not be Profitable to sell gas from America to East Asia even not considering the “massive economic benefit” of reducing CO2 by burning hydrogenated fuel? Green folk truely are not MIT worthy.

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