LNG industry venturing into new territory

Market Update: Oil & Gas – March 2015

Oil benchmarks remained volatile in February and early March as competing market fundamentals continued to drive fluctuating price movements. New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) futures increased through mid-February, rising to 54.24 US dollars (US$) per barrel (b), followed by a 14 percent slump to US$46.67/b by the end of the month. Concerns over rising gasoline supplies, strong production volumes and the strengthening US dollar contributed to the fall in WTI. ICE Brent, meanwhile, rose by 18 percent during February, with the front month contract hitting a high of US$63.00/b on 17 February 2015. Fears over Libyan and Iraqi crude oil supply helped the Brent contract trade higher during the second half of the month and widen its premium over WTI.

Geopolitical tensions supported European gas prices in February, as Ukraine’s gas supply pre-payments to Russia ran out, sparking concerns over continuation of supplies. The market later found some relief when Ukraine pre-paid US$15 million to Russia, covering supplies until mid-March.

World LNG landed prices, March 2015 (% depicts change from March 2014 prices)

World LNG landed prices, March 2015 (% depicts change from March 2014 prices)

US crude oil inventory

The inventory buildup in the US continued to dominate global oil market talk. For the week ending 20 February 2015, the total utilization of crude oil storage capacity in the US was close to 60 percent, compared with 48 percent at the same time last year. Capacity at Cushing (Oklahoma), the delivery point for WTI crude, was approximately 67 percent, against 50 percent a year previously. US crude oil stocks increased 8 percent month-on-month to reach 444.4 million barrels during February. As US tanks move closer to their physical limits, oil could be stranded at the well, due to limited storage options and weak end-user demand.

Global liquefied natural gas (LNG) prices suffer a similar fate to oil

Over the last 6 months, LNG spot prices have seen a significant deterioration. The price slide is no coincidence with almost 75 percent of LNG cargoes linked to oil prices. According to the US Federal Energy Regulatory Commission (FERC), LNG landed prices more than halved over the course of a year, with Asian prices, a key demand hub for LNG, hovering around US$6 to 7/million British Thermal Units (MMBtu), compared with US$17 to 20MMBtu in March 2014. In early February, demand for nonRussian gas caused European LNG prices to surpass Asian prices. However, on 27 February 2015, prices converged as the Asian spot price rose to US$7.65/ MMBtu, while the British front-month gas contract dropped to US$7.57/ MMBtu, due to an influx of LNG arrivals from Qatar and reduced diversion of Atlantic-produced LNG to Asia.

Market Update: Oil & Gas – March 2015 (PDF 2 MB)

David Okwara

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