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Gas Glut
The Other Hydrocarbon Price Crash

Oil prices have tumbled from a June 2014 peak of $115 per barrel down into the low $40 range, but they’re not the only hydrocarbon that’s selling for a bargain these days. Spot prices for liquified natural gas (LNG) are dropping to all-time lows (though we should note that LNG spot pricing is still a relatively new development, making this low water mark perhaps a bit less impressive).

Japan is the world’s biggest importer of LNG, and spot prices there fell to $6.80 per million British thermal units (mmBtu) last month, and Asian prices were another $2 cheaper thanks to slowing demand. But while oil prices have rebounded slightly from a January nadir, LNG keeps falling, and that divergence is a major concern for producers. Bloomberg explains:

Oil and LNG prices have historically been linked because traditional long-term contracts priced the gas in relation to crude. That correlation held through 2014 and 2015, as prices for both fuels tanked amid a global glut.

The two are now heading in opposite directions. Spot LNG in Singapore slipped to $3.954 per million British thermal units the week of April 11, the lowest since Singapore Exchange Ltd. began assessing it in September 2014 and extending its decline into a fifth month. Brent, meanwhile, recovered from its early-year crash to post its best first quarter in four years. The global oil benchmark rose 1.6 percent to $42.62 a barrel by 10:23 a.m. New York time. […]

“In oil, the big thing is the loss of production, as drilling activity around the world has dropped off and that’s balancing the market,” Sikorski said. “LNG is going to continue to throw gas at the world as major projects come on stream and need to recover their big costs. It’s a perfect storm of stuff to keep the spot market low.”

One of those new producers that will be intent on keeping the global market well- (and even over-) supplied is, of course, the United States, which just this year started exporting its glut of shale gas in liquified form, the first cargoes of which left Louisiana for Brazil in late February. The timing of this couldn’t be worse for those interested in making a profit on selling fracked gas abroad, but given the massive capital investments and long-term contracts already inked, some of America’s gas glut is still going to go global.

Just as is the case with the oil market, it’s a very bad time to be in the business of producing LNG, and a great time to be a buyer—Tokyo won’t be complaining.

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