Liquefied natural gas is fetching the lowest price on record in Asia, a troubling sign for U.S. energy producers who have relied on overseas shipments of shale gas to buoy the sagging domestic market.
The main price gauge for liquefied natural gas, or LNG, in Asia fell to $3.15 per million British thermal units Wednesday, down sharply from more than $20 five years ago as U.S. deliveries have swamped markets around the world .
As recently as Jan. 15, the Asian benchmark, called the Japan Korea Marker, was comfortably above $5. Around then, fear that the coronavirus outbreak would stall economic activity in the world's second-largest economy added to other factors already pressuring prices. Those included a mild winter in Asia, ample local stockpiles and increasing deliveries from U.S. gas-liquefaction facilities.
"The fundamentals were already really weak," said Ira Joseph, head of gas and power analytics at S&P Global Platts, which tracks prices. "The whole market is really oversupplied."
Tumbling LNG prices are cause for concern for a wide swath of energy companies, from major oil companies Royal Dutch Shell PLC and Chevron Corp. to independent firms that operate export terminals, such as Cheniere Energy Inc., and shale-gas producers like Cabot Oil & Gas Corp., Range Resources Corp. and EQT Corp.
A problem for LNG suppliers like these is that power plants in Asia have been slower to switch from burning coal to gas than their U.S. and European peers were when cheap shale gas flooded their local markets, Mr. Joseph said.
"We're not seeing a demand response," he said. "Buyers aren't as nimble."
In the U.S., natural gas prices fell below $2 per million British thermal units last month and have remained there, a remarkable drop given that prices are typically at their high point in winter, when demand for the heating fuel is high.
Natural-gas futures for March delivery fell 0.6% Wednesday to $1.861 per million British thermal units, down 30% from a year ago despite record consumption by U.S. power plants and a surge in exports, both seaborne and across the southern border into Mexico via pipelines.
Given that it typically costs about $2 per million British thermal units to liquefy and ship the fuel to Asia, prices there have fallen to a level that makes spot deliveries from the U.S. cost more than what buyers are willing to pay.
LNG prices also have dropped in Europe, where LNG shippers are vying for market share with Russian and Norwegian producers. Gas in European storage facilities is nearly 50% above the five-year average, according to Tudor, Pickering, Holt & Co.
"We're currently modeling flat year-over-year demand in Europe, which will put the onus on Asia to drive global demand growth in 2020," the Houston investment bank wrote in a recent note to clients.
China's near-term gas consumption is in question given the coronavirus quarantines and shutdown of factories, which consume the bulk of the country's imported gas. But one bright spot for gas demand in Asia could be India, which recently outlined a plan to double the share of energy produced from natural gas to 15% by 2023. Much of the supply needed to meet India's goal will have to come from LNG, Tudor Pickering analysts said.
Meanwhile, U.S. gas producers may have to slow their output. Some producers already have said they would reduce drilling budgets , citing prices that make many wells uneconomical. So far, production has continued to set new highs despite falling prices.
Analysts at Bernstein Research estimate the floor for U.S. gas prices is around $1.70. The analysts arrive at that number by subtracting the cost of storing gas for a season—55 cents or so—from $2.25, which is the price at which they calculate most drillers could sustain production.
At prices below $2.25, producers will likely idle drilling rigs and reduce output, the Bernstein analysts said this week. "We anticipate this will happen over the coming weeks, which should provide some support to (second half of 2020) prices," they said.
Others are less optimistic. Bank of America analysts recently lowered their 2020 price forecast to $1.99. At that price, power plants in the Midwest could be compelled to switch to cleaner-burning gas, from coal mined in the Rocky Mountains, they wrote in a research report.
"The U.S. cannot sustain reduced LNG exports this summer," the Bank of America analysts wrote. "Natural gas prices might have to go low enough to stimulate sufficient Midwest power-sector natural-gas demand to balance the entire global gas market."