LNG
Record Low Henry Hub Prices
January 2020
Winter gas prices at the US benchmark Henry Hub sank to a record low in December as an increasingly robust supply outlook for this season continues to drag on market sentiment.

Henry Hub natural gas prices continued to slide on late November declines, trading in the range US$2.22/MBtu to US$2.46/MBtu, after climbing into the mid-US$2.80’s/MBtu in early November, prices have fallen by over 20%, to levels not seen since 2013. While short-term weather forecasts appear to be driving weakness in the market, lower winter prices come as strong US production and robust storage levels keep the US market well supplied. Adding to the bearish winter-season outlook, are medium-term weather forecasts that now predict above-average temperatures across much of the US this winter.

LNG prices will remain under downward pressure during Q1 2020 due to warmer-than-normal weather in the northern hemisphere, increasing global production and elevated stocks. Above-average temperatures means residential-commercial heating demand could be reduced. Spot LNG prices imported into Japan increased in November. The November arrival-based price was at US$5.5/MBtu, edging up from US$5.4/MBtu in October.

Over the next 2 years LNG prices are likely to remain under downward pressure as supply outstrips demand, given strong competition and a slowing global economy. Supply growth will be driven by the completion and ramp-up of LNG projects in the US, Australia and Russia. Beyond 2021, supply-demand dynamics suggest that prices could rise rapidly if new supply is not brought to market in a timely manner, or if demand increases more quickly than expected.

Chinese LNG demand is forecast to increase by over 34% year on year (y-o-y) in 2019, demand growth for LNG by China can only be described as stellar. It is exceeding forecasts and will reach 65Mt in 2019 and 70Mt by 2020. Japan's demand is forecast to reach 82Mt in 2019. Other major importers include India and South Korea.

In what may be a sign of things to come, Singaporean gas importer and marketer Pavilion Energy has taken the unusual step of cancelling the loading of an LNG cargo from the US. The global LNG market is awash with new supply amid slowing demand in China and Japan, leaving some traders with cargoes they have bought but are unable to resell. In an oversupplied LNG market, traders would typically ship cargoes to European gas storage. But this year facilities in Europe are full. So, cancelling or not lifting US cargoes is probably a way to minimize losses.