LNG prices have fallen on weak demand and high stocks Spot LNG prices in Asia have retreated sharply to $14/MMBtu after reaching a 4-year high of almost $20 in February. Tightness in global LNG markets evaporated as gas demand in North East Asia eased seasonally after the winter and cyclically on rising economic headwinds.
On top of that, supply from top exporters like Nigeria and Norway recovered. Thus gas storage built to healthy levels, with Japanese gas stocks now at a record seasonal high. Japan now prefers to destock and LNG imports contracted compared to last year in the first quarter.
A restart of Japanese nuclear plants is not imminent In addition to healthy inventories, the LNG market has to contend with the possibility of nuclear power plant restarts in Japan. Our utilities analysts expect 5 nuclear power plants (3.8 GW of capacity) to restart by year-end, rising gradually to 19.7 GW by the end of next year. That compares with 49 GW of nuclear capacity prior to Fukushima.
On the back of this, we see barely any impact on LNG imports this year. Next year, we see a more significant decline in imports of 5.9 to 81 million mt in 2014. Still, that is well above the 70 million mt of LNG imported in 2010 prior to the Fukushima crisis.
Meanwhile, the LNG supply side remains constrained given the dearth of new liquefaction projects starting up until 2015. As long as so much nuclear capacity remains offline in Japan, LNG prices remain vulnerable to spikes during peak demand seasons.
With Asian demand likely to strengthen seasonally and with Latam demand for LNG booming, Europe will likely start to lose out again in the competition for LNG cargoes. Having benefitted from a sharp pick-up in cargoes in recent weeks, we expect European LNG imports to fall again in coming months, due to diversions to more lucrative destinations in Asia and Latin America.
This could provide support to NBP prices this summer. A more significant slowdown in EM growth is perhaps the biggest risk to this view
Source: BofAML