“LNG prices are going to fall sharply in coming months. This is not a surprise, as it follows the lower oil prices of three to six months ago,” Shaw and Partners analyst Stuart Baker said.
«A steep drop is coming,» he said.
“[LNG’s] linkages to oil, and delays in pricing, mean that the collapse in global oil prices which occurred last November have yet to show up in delivered LNG prices but that will surely happen in the coming months.”
A steep drop [in gas prices] is coming.
Shaw and Partners analyst Stuart Baker
The Brent crude oil price reached a four-year high of $US86 a barrel in October last year but quickly fell off a cliff, slumping to a one-year low of $US50 a barrel the day before Christmas. It has since recovered slightly to about $US67 a barrel.
The oil price was forced down by a flood of new US oil production, with UBS forecasting an average 2019 oil price of $US65 a barrel.
Mr Baker said LNG prices hit $US10.8 per million British thermal units (mmBtu) in the fourth quarter of 2018, with expectations it will drop to about $US7.3 per million mmBtu in April and May. One gigajoule is close to the equivalent of one mmBtu.
Oil Search and Woodside are the Australian energy companies most likely to be hit by a falling gas price.
Credit Suisse research said Oil Search earnings could fall 5 per cent, and Woodside’s around 4 per cent, in 2019 and 2020 on the back of lower gas prices.
Manufacturing Australia chief executive Ben Eade said the industry was still facing high contract gas prices.
«There’s still a disconnect between what is happening in global markets and what we’re seeing with gas contracts on the east coast of Australia,» Mr Eade said.
The Australian government is more bullish on gas prices. The Department of Science, Industry and Innovation’s latest Resources and Energy Quarterly report expects gas prices to hover around $12 a gigajoule for the next four years.
Bell Potter research said any price falls would only be short-lived and expects higher LNG prices ahead.
«An LNG supply deficit globally, coupled with ongoing risks to Australian domestic supplies, should see sustained higher gas prices on the east coast of Australia,» Bell Potter analyst Stuart Howe said.
Woodside’s share price was down 0.4 per cent to $34.71 at the close of trading on Friday, while Oil Search was down 0.5 per cent to $7.87.
Covering energy and policy at Fairfax Media.