Natural gas prices are down more than 4% today at $1.67 per MMBtu, the lowest they have been since 1999. Waning demand for natural gas in Japan, warmer weather expectations in the U.S., along with an expected surge in LNG supplies has put a great deal of downward pressure on natural gas prices.
Japan, the world’s largest importer of natural gas, continues to bring more of its nuclear reactors back online following the 2011 Fukushima disaster. Since August, Japan has restarted three of 43 nuclear reactors, with more expected in the future. The higher energy output form the nuclear reactors will continue to lower the country’s need for LNG shipments.
In January, shipments of LNG into Japan fell the most in more than six years, reports CNBC.
This drop in demand comes as major LNG projects are gearing up to begin exports. Oil majors in Australia have pumped more than $160 billion into the Gorgon LNG project, and Cheniere’s (ticker: LNG, Cheniere.com) Sabine Pass project recently shipped its first cargo.
The Gorgon project is expected to help grow Australian LNG production by 50% through 2020, even as producers cut capital expenditures, said Fitch Group unit BMI Research in a note last week.
Demand from China is also beginning to slow, with LNG imports falling 1% in 2015 – the first time on record – as the economy slows. Many buyers have also decided to defer previously-contracted cargoes because the lower prices have made the spot market more competitive.
BMI Research said it expects LNG contracts to evolve into a cargo-by-cargo contract model rather than one based on 15-20 year-long contracts if oversupply persists.
