Wood MacKenzie’s head of global gas and LNG research Noel Tomnay said new demand for gas and LNG could be created through the displacement of coal in power generation, a theme which was central to Tomnay's presentation at Gastech 2015's Market Outlook session in Singapore last week.
Tomnay said the gas price at which coal will be displaced, a soft floor for gas prices, will be determined, in part, by the price of coal.
"Assuming higher ARA [price assessment for thermal coal shipped to the northwest European trading hub of Amsterdam, Rotterdam and Antwerp], coal prices in Europe of $US70/tonne and Japanese coal prices of $80/t (cost and freight), a floor price for gas in Europe and Asia should be maintained at prices above $5/MMBtu.
“This should be sufficiently high to avoid US LNG being shut-in.”
However, Tomnay also warned that lower coal prices, possibly a consequence of reduced demand through displacement by gas, risked pulling both gas and coal prices down further.
“At prevailing ARA coal prices of $50/t and Japanese coal prices of $60/t CFR, a floor price for gas in Europe and Asia could go down to prices at which many US LNG exports fail to cover cash costs, around $4/MMBtu,” he said.
“This would force US LNG exporters to consider shutting-in for periods, a move which would depress US gas prices.”