Coal prices to hit LNG market

GLOBAL coal prices will be the key to potential US LNG shut-ins amid a prolonged LNG glut that could yet get worse as coal seam-fed projects in Australia enter the market to make things worse, consultancy Wood MacKenzie says.
Coal prices to hit LNG market Coal prices to hit LNG market Coal prices to hit LNG market Coal prices to hit LNG market Coal prices to hit LNG market

QCLNG image courtesy of Bechtel.

Anthony Barich

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.”

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