LNG Market - Strong Demand and Higher Prices

[dan_s]

Platts JKM rises above $10/MMBtu mark on north Asian LNG demand, oil price strength

Singapore (Platts)--7 Dec 2017 959 pm EST/259 GMT

Spot Asia LNG prices broke above $10/MMBtu Thursday on robust peak winter demand from Northeast Asia and recent oil price strength.

The Platts JKM for cargoes delivered in January was at $10.05/MMBtu, the first time in double digits since January 2015, having surged more than 60% since the beginning of September.

Platts JKM

Spot prices have been on an upward trajectory over the past three months, almost doubling the 2017 low of $5.35/MMBtu.

A similar upward trend was observed in the JKM towards the end of 2016, before prices dropped to just over $5/MMBtu by the end of March.

While the price surge last winter was spurred by supply concerns, mainly at Australian and Angolan facilities, this year's rally has been underpinned by strong demand from north Asian buyers, especially from China.

CHINA DEMAND GROWTH

China's soaring demand for LNG imports this year has been driven by cold weather, coal-to-gas switching policy directives to curb air pollution, and large-scale replacement of coal-fired heating with gas-fired boilers in domestic households.

The country has imported 32.7 million mt of LNG in 2017 to date, just below the 33.3 million mt imported by South Korea, according to Platts Analytics, and well above the 25.7 million mt China imported in the full year 2016.

China's interest in January cargoes has been strong, with recent bids from end-users in the high-$9s/MMBtu, though the country's spot demand growth potential might be limited by high terminal capacity utilization.

Terminals in the key winter demand center of northeast China, operated by state-owned importers CNOOC, PetroChina and Sinopec, have been running above nameplate capacity, according to market sources.

OIL PRICE STRENGTH

Higher oil prices have also made long-term oil-linked LNG contracts more expensive, boosting demand for spot cargoes at the peak of winter.

"Oil prices were in the $40s-$50s/b at the same time last year, but now we are $10/b higher," a Singapore trader said. "If you look at the oil slope, then [spot prices] are not high."

Recent oil price strength has begun filtering through the contractual lag period, lifting the forward early 2018 term delivery price expectations.

While current oil-slope equivalent levels for spot LNG are above 16%, historical trends suggest upside potential, according to S&P Global Platts price data.

NOT JUST SEASONAL

While seasonal purchases have played their part in rising spot prices, longer trends have also been observed.

The global transition to lower-emission energy sources is making LNG a key fuel of choice in existing and emerging Asian markets, encouraging coal-to-gas switching and boosting LNG demand.

That trend has been further stimulated by four years of low LNG prices, supporting baseload demand creation in new markets seeking to address chronic energy deficits, such as Pakistan.

Overall, global LNG demand over January-October rose 10.6% year on year to 237 million mt, according to Platts Analytics, with most of the growth from China.

The trend was set to continue, with China's gas demand expected to see the largest absolute growth in 2018, according to Mel Sawaryn, Senior Lead Analyst at Platts.

The largest percentage increase was expected to come from LNG and domestic production, while pipeline imports will likely remain relatively stable, Sawaryn said.

-- Abache Abreu, abache.abreu@spglobal.com

-- Kenneth Foo, kenneth.foo@spglobal.com

-- Edited by Daniel Lalor, newsdesk@spglobal.com
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[mkarpoff]

All this happy talk. Meanwhile, gassers are going nowhere. Ugh.

[dan_s]

All three of the "gassers" in the Sweet 16 (AR, GPOR and RRC) are now trading below book value.

Knowing how conservative GAAP accounting rules are for upstream oil & gas companies, it is ridiculous for profitable upstream companies to trade below book value.

All three companies should have positive EPS in Q4 and for the full year 2017.

All three companies have more than 20% YOY production growth locked in. GPOR should report over 50% YOY production growth.

Natural gas price dipped last week because of a bearish storage report and the speculators that were long all trying to close positions at once. The storage reports for the rest of December should be triple digit declines in ngas storage. Wild price swings on storage reports are common in December.