Trend of Natural Gas and LNG Prices
- The assessed spot LNG price for Northeast Asia (JKM) for delivery in October 2020 had been recovered above USD 4 per million Btu in late August and is staying around USD 4.5 since then. JKM for delivery in November was at USD 5.074 as of 28 September, the first time in January 2020 that the price was in the USD 5 range. Although the prospect for global economic recovery after the COVID-19 pandemic is still unclear, some Asian consumers intended to seek additional LNG cargos and supply-side issues such as extended maintenance at Gorgon LNG or suspended some LNG facilities in the United States after a hurricane, JKM has been steady. Meanwhile, price-sensitive Indian buyers and Chinese buyers who can buy natural gas by pipeline may reduce the import of spot LNG if JKM becomes higher, which may suppress future price increases. The average spot LNG price published by METI was USD 2.6 for August delivery (USD 1.5 lower than July 2020).
- The Henry Hub price for delivery in the next month was at USD 2.14 as of 28 September 2020, climbing above USD 2 in early August and further above USD 2.5 at the end of August for the first time since last November. It had been below USD 2 from 20 January until the end of July except for USD 2.13 on 2 May. In mid-September, HH briefly dropped to USD 1.8 due to the shutdown of some liquefaction facilities but has since recovered to the USD 2. Although domestic demand will decrease as the summer ends, HH is expected to modestly rise by increasing export gas include LNG, and by possibly suspending some production facility by hurricanes.
- Meanwhile, the TTF price for delivery in the next month was at USD 4.2 as of 28 September. It also recovered to above USD 2 since early August, to above USD 3 in late August and USD 4 in early September as increasing electricity demand with hot weather. The increase of prices has also something to do with reduced LNG flow from the United States and reduced pipeline gas imports from Norway due to planned maintenance. TTF is expected to climb modestly with expected heating demand for winter. LNG import from the United States will increase if the price spread between HH and TTF becomes wider. However, as there is plenty of pipeline supply capacity, and underground storage levels have been already above 90%, together with the uncertain demand outlook, future price increases may be modest.
- Japan's average LNG import price of USD 5.94 in August 2020 was 2.75 times as high as JKM for delivery in August 2020 (assessed between mid-June 2020 and mid-July 2020) at USD 2.16. The gap was smaller than 3.53 in July but still wide. The average landed prices of LNG to Japan from the ASEAN, the Middle East, and Russia in August were USD 5.09, USD 4.86, and USD 5.00, respectively, to undercut the overall average of USD 5.94. On the other hand, the average landed price of LNG to Japan from the United States during the month was USD 9.37, much higher than the overall average. As most of the long-term contract prices to buy LNG in Japan are linked to oil prices except for LNG from the United States, the collapse of international crude oil prices has affected long-term contract LNG prices. Reflecting on the downward trend of crude oil prices, the average landed LNG price in August was under USD 6 for the first time since June 2016. A similar level is expected for September. Meanwhile, Japan imported 5.840 million tonnes of LNG in August 2020, 4.3% lower than one year ago.
Mid- to long-term trend
- Japan's average LNG import price has fallen over the last decade from a peak in the USD 18 range in 2012 to USD 5.94 in August 2020, largely due to the downward trend in crude oil prices, to which long-term contract LNG prices are pegged. With the collapse of crude oil prices after March 2020, Japan's average LNG import price is expected to further go down, especially from July. Since the impact of the fall in crude oil prices since March 2020 will be reflected in Japan's average LNG import price after a time lag of about three months, Japan's average LNG import price fell to under USD 6 in August, and a similar level is expected September, but from October onwards the Japan's average LNG import price is expected to pick up slightly, reflecting the crude oil price from July onwards.
- After JKM for delivery from November 2019 to January 2020 briefly stayed at around USD 6, JKM declined dramatically to below USD 2 in late April for June 2020 delivery. This is a remarkable decline to a historically low level. JKM, which in recent years moved in the range between European spot gas prices at the lower end and crude oil equivalent at the higher end, have stayed near the lower end since 2019.
- Japan's average LNG import price for May-July 2020 was significantly higher than the JKM price. This has been the trend for Japan since the Great East Japan Earthquake in 2011. The most recent reason for such price difference is massive LNG supply especially from the US, and a weaker appetite for LNG by Japan, Korea, and other Asian markets, due to COVID-19 spread. The time lag between crude oil price fluctuation and its reflection in contracted LNG prices have also played a role. Combined LNG imports by Japan, Korea, and Chinese Taipei during the first eight months of 2020 decreased year-on-year by 2.1%, or 1.80 million tonnes, and were smaller by 9.7%, or 9.24 million tonnes than those during the same months in 2018 and remain weak.
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Henry Hub price: NYMEX Futures and Options, CME Group
NBP price: ICE Futures Europe, Intercontinental Exchange
TTF price: ICE Futures Europe, Intercontinental Exchange
JKM: LNG Japan/Korea Marker© 2020 by S&P Global Platts, a division of S&P Global Inc.
METI spot price: Spot LNG Price Statistics, Ministry of Economy, Trade and Industry
Japan’s average LNG import price: Trade Statistics of Japan
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Trend of Natural Gas and LNG Inventories
- Japan's LNG inventory as of the end of May 2020 stood at 5.10 million tonnes, an increase of 7.5% from the preceding month, and an increase of 13.6% from one year earlier. It was 0.89 million tonnes higher than the last five-year average and was the highest for May, and was the second all-time highest after November 2019 since the start of statistics in 2008. The LNG inventory for city-gas supply in the month was 2.31 million tonnes, 3.9% higher than April 2020, and 2.6% higher than May 2019.
- LNG consumption for city-gas stood at 1.76 million tonnes, decreasing by 17.5% year-on-year in May 2020. LNG received by city-gas companies decreased by 20.8% year-on-year to 1.85 million tonnes in May 2020. As a result, the LNG inventories increased from the previous month due to the larger decrease in consumption. Regarding city-gas demand, especially for commercial and industrial use, the decline was greater in May 2020 than in April 2020 when the national emergency declaration in Japan was issued.
- The LNG inventory for power generation fuel in May 2020 was 2.78 million tonnes, increasing by 10.8% from April 2020 and 24.7% higher than May 2019. As gas-fired power generation output by incumbent electric power companies decreased by 18.7% year-on-year in May 2020, the LNG inventories for power generation fuel increased. The impact of lifestyle changes - more people working from homes - on residential electricity consumption was limited during the period.
Compiled based on data from Gas Business and Thermal Power Generation Statistics, Ministry of Economy, Trade and Industry.As the inventory data is available for the period only after January 2008, the five-year average is applicable only after January 2013.
- As of 18 September 2020, working gas in underground natural gas storage in the United States was 3,680 Bcf, a 7.6 % increase in one month, according to data from the U.S. Energy Information Administration (EIA). Gas inventories were 14.8% or 475 Bcf higher than those at the same point in 2019 and were 407 Bcf higher than the past five-year average of 3,273 Bcf. Gas inventories were higher than the range for the past five years, were at the highest level for September in a decade.
- According to EIA's Natural Gas Weekly Update on 17 September 2020, the net injections into natural gas storage totaled 89 Bcf for the week ending on 11 September, and it was higher than the average of the past five-year (2015 - 19) net injections of 77 Bcf and last year's net injections of 82 Bcf during the same week. The average rate of injections into storage is 7% higher than the average for the past five years so far in the refill season (April through October). If the rate of injections into storage matched the average for the past five years of 10.6 Bcf/d for the remainder of the refill season, the total inventories would be 4,144 Bcf by the end of October.
- According to the Short-Term Energy Outlook released by the EIA in early September 2020, natural gas inventories have shown year-on-year increases since April 2019. However, EIA forecasts that natural gas production will decline until March 2021 and that natural gas inventories will begin showing year-on-year decreases in December 2020. The decline in inventories is expected to contribute to Henry Hub natural gas higher prices.
- The maximum inventory of working gas in underground natural gas storage in the United State over the past 10 years has been around 4 Tcf. However, according to the EIA database, natural gas production increased by more than 20%, natural gas consumption increased by more than 14%, and natural gas exports increased by more than 45% between 2017 and 2019 in the country, changing gas supply and demand dynamics dramatically. According to EIA, August 2019 held the record for the most natural gas consumed in the electric power sector in a single month and both electric-power-sector natural gas consumption and total natural gas consumption reached their highest-ever annual levels in 2019, hence this growing trend would generally encourage more storage capacity. In addition, increasing exports of natural gas also could create a need for additional natural gas storage capacity in the Gulf Coast region to support pipeline exports of natural gas to Mexico and LNG exports.
Compiled based on data from the U.S. Energy Information Administration (EIA)
- As of 27 September 2020, the stored volume of natural gas in European underground storage facilities operated by the Aggregated Gas Storage Inventory (AGSI +) member companies of the European Union (EU) was 1,054 TWh. The inventories were 4.3 % higher than one month ago and 0.1 % lower than one year earlier, and 121 TWh higher than the five-year average. In September, the LNG inventories fell below the same month last year for the first time in the past year. The stored volume on 27 September 2020 representing 95% of the working capacity, is within the past five-year range of 78% - 95% at the time of the year. While the volume was about the same as at the same time last year, the storage capacity increased by about 20 TWh, resulting in a slight decrease in the utilisation rate of working capacity compared to the same month last year. The inventory levels in the high-gas-demand period from November will depend on two factors. One is the temperature in winter. Last year, as a warm winter in Europe and Asia resulted in an excess of natural gas supply, the gas stored in European storage facilities had difficulties finding places to go. As the other factor, if the COVID-19 further hinders the economic recovery and suppress gas demand, the storage capacity utilisation rate may be kept higher than 50% as it was in spring 2020.
Compiled based on data from Gas Infrastructure Europe, Aggregated Gas Storage Inventory (AGSI). As the inventory data is available for the period only after January 2011, the five-year average is applicable only after January 2016.
Latest Developments in Major Natural Gas and LNG Projects
- All the first-wave LNG export facilities in the United States had entered commercial operations by the end of August 2020, although judging from reports of the extension of deadlines for completion of the Freeport Train 4 liquefaction facility and Magnolia LNG project, operations of the second-wave LNG projects are expected to be delayed. The Cameron LNG facility, which temporarily suspended the operation after a hurricane in late August, is expected to resume operations in stages from late September to October. The Gorgon train 2 liquefaction facility is expected to resume production in October after repair works.
Asia and Oceania
- Tokyo Gas announced the establishment of ''TG Global Trading Co., Ltd.'' (TGT) on 1 September 2020. In the Group Management Vision 'Compass 2030', Tokyo Gas Group has set the goal to expand our natural gas transaction volume to 20 million tonnes which includes LNG trading volumes of 5 million tonnes by 2030.
- On 16 September 2020, a naming ceremony was held at the Sakaide Works of Kawasaki Heavy Industries for Japan's first LNG bunkering vessel, Kawasaki Kisen Kaisha (K-Line), JERA, Toyota Tsusho, and Nippon Yusen (NYK) announced on 18 September. Kaguya is the first LNG bunkering vessel to be operated in Japan. Kaguya will be operated by Central LNG Marine Fuel Japan Corporation and will be based at JERA's Kawagoe Thermal Power Station. Kaguya will begin supplying LNG fuel to ships in October or later in 2020.
- China's Shanghai Petroleum and Natural Gas Exchange (SHPGX) started the trial run of its online platform for international LNG trading on 28 August 2020. Sinopec and CNOOC respectively reached LNG purchase deals with their foreign counterparts through the trading platform, with total trading volume at 130,000 tonnes.
- Malaysia's PETRONAS announced on 8 September 2020 that it had launched the Virtual Pipeline System (VPS) solution via the Regasification Terminal (RGT) in Pengerang, Johor. The VPS solution delivers LNG using trucks to off-grid customers.
- Singapore LNG (SLNG) and Total Solar Distributed Generation (DG) signed an agreement for solar power to be implemented at the Singapore LNG Terminal on Jurong Island, SLNG said on 16 September 2020. Total Solar DG will finance, build and operate a 600 kilowatts peak (kWp) rooftop solar power system, which will be installed on the rooftops of several buildings at the Terminal. The installation of the solar panels is part of SLNG's slew of initiatives under its Green Strategy and is expected to be completed by Q4 2020. This rooftop solar power system will generate around 800 megawatt hours (MWh) of renewable energy and has the potential to avoid an estimated 300 tonnes of carbon dioxide emissions, annually.
- The Board of Investment of Sri Lanka announced on 24 August 2020 that it had signed an agreement with Pearl Energy (Pvt) Ltd., to launch 'Hambantota LNG Hub' - a floating storage LNG trading facility at the Port of Hambantota, with a primary aim of trading LNG in the region. Pearl Energy will utilise a floating storage unit (FSU) with an initial capacity of 1 million tonnes per year within 6 months. The company will deploy small LNG Carriers to re distribute LNG to South India & the Maldives.
- Chevron Australia on 3 September 2020 advised additional time would be taken to complete repairs of propane heat exchangers on LNG Train 2 at the Gorgon plant. Chevron expects the repairs to the heat exchangers, where weld quality issues were discovered during scheduled maintenance in July 2020, to be complete and to restart production at Train 2 in October.
- Sumitomo Corporation announced that on 4 September 2020, it closed a transaction to sell Marcellus Shale Gas development project and its relevant assets (the Project) in the state of Pennsylvania.
- FERC (Federal Energy Regulatory Commission) granted Freeport LNG extension of time to complete the construction of the Train 4 project until May 2026, according to FERC on 10 September 2020.
- The Elba Liquefaction Company, a joint venture between Kinder Morgan and EIG Global Energy Partners (EIG), announced on 27 August 2020 the commercial in-service of Unit 7, the last of 10 Movable Modular Liquefaction units of the Elba Liquefaction project. The Elba Island Liquefaction facility has a total capacity of approximately 2.5 million tonnes per year of LNG.
- Glenfarne Group asked FERC to extend the deadline to complete the Magnolia LNG project on Friday 11 September 2020. The company is now targeting 2021 for sanctioning the project, with in-service in April 2026. When the project was approved by FERC in 2016, it was ordered to be placed in service by April 2021.
- On 20 August 2020, DOE (U.S. Department of Energy) issued an order authorizing Alaska LNG to export LNG to any country with which the United States has not entered into a free trade agreement (FTA). The announcement follows FERC approval of the siting, construction, and operation of the liquefaction terminal and a related pipeline. The pipeline would supply the project with natural gas produced on the North Slope. The export terminal is planned for the Nikiski area of the Kenai Peninsula. The DOE approval authorizes LNG exports of up to 2.55 Bcf/d (19.37 million tonnes per year). Alaska LNG is the 20th large-scale export facility to secure final long-term DOE permission for global exports. It also is the second on the West Coast, following the approval in July 2020 for the Jordan Cove project in Oregon.
Europe and Russia
- Equinor announced on 2 September 2020 that it had awarded Aibel a front-end engineering and design contract (FEED) for modification of the Hammerfest LNG plant in connection with the Snøhvit Future project. The FEED work will cover two sub-projects under the Snøhvit Future development: onshore compression and Hammerfest LNG electrification. The onshore compression station would be expected to contribute to an increase of the recovery factor from the Snøhvit field. By replacing current gas turbines with power from shore, it may be possible to reduce CO2 emissions to near zero. Equinor and partners plan a concept select decision for the electrification scope by the end of 2020. The partners are working towards two final investment decisions (FIDs) for the sub-projects in the second half of 2021.
- The Greece's Gastrade announced the signing of the agreement for the acquisition of 20% of its share capital by the Bulgaria's BULGARTRANSGAZ EAD (BTG). Gastrade is developing the LNG floating storage and regasification unit (FSRU) offshore Alexandroupolis. This is a European Project of Common Interest (PCI - EU Regulation 347/2013). The project supports and completes the Greece-Bulgaria interconnector (IGB) involving Bulgarian Energy Holding, the parent company of Bulgartransgaz, and DEPA, through which natural gas will be channeled from the LNG Terminal in Alexandroupolis to Bulgaria and from there to the other markets of Southeast Europe. The LNG Terminal in Alexandroupolis is expected to be operational in early 2023.
- MVM's (Hungarian Electricity Works) gas trading unit had signed an agreement with Shell to purchase an 250 million cubic metres (0.18 million tonnes) per year of LNG at the LNG terminal in Krk, Croatia from January 2021 to 1 October 2027, Hungary's Minister of Foreign Affairs and Trade said on Friday 4 September 2020. MFGK Croatia, the Croatian unit of the MVM, has recently signed a contract booking regasification capacity of some 1 billion cubic metres per year over a period of almost seven years at the Krk terminal. The terminal is to start operating in January 2021.
- Russia's Gazprom issued its interim financial information for the first six months of 2020. Net sales of gas to Europe and other countries decreased by RUB 677,312 million, or 47%, to RUB 756,279 million for the six months compared to the same period of the prior year. The change was mainly due to the decrease in average prices of 38% in the Russian Ruble and of 42% in US Dollar and the decrease in volumes of gas sold by 17%, or 19.7 bcm (from 117.9 to 98.2).
- Russia's state development bank VEB.RF said on Monday 24 August 2020 that it will provide RusKhimAlyans, a joint venture between Gazprom and RusGazDobycha, with a RUB 55 billion (USD 741 million) loan for a gas processing and liquefaction project near Ust-Luga, in the Leningrad region. The gas processing plant will have a capacity of 45 billion cubic meters per year and the liquefaction plant is planned at 13 million tonnes per year. First LNG is expected in the fourth quarter of 2023 and the second train should be online a year later.