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Fuel switching supports LNG prices

LNG Industry,

According to the latest Point Carbon analysis from Thomson Reuters, fuel switching is supporting competitive LNG prices.

Following a sizeable drop in LNG prices, gas-fired power plants have become increasingly competitive compared to coal and fuel oil-fired plants. The extra demand for gas that this will generate will influence LNG spot prices in Asia.

The analysis, ‘Fuel Switching – Impact on Demand and Pricing’, considers fuel switching levels in the power sectors in Japan, South Korea and the UK, as well as their ability to act as support and resistance levels for spot LNG prices.

The demand from fuel switching in the UK in particular looks likely to support NBP prices and Asian spot LNG prices near current levels.

The report estimates that latent gas demand from potential coal to gas switching in the three countries could reach approximately 4 billion m3 per month, equivalent to approximately 45 conventional LNG cargoes.

The potential for additional demand, prompted by low prices, will help the global LNG market absorb the wave of fresh LNG supply from Australia and the US, which is expected to hit the market over the next few years.

At least two of Japan’s nuclear reactors are expected to return to operation this year, however this will mainly affect fuel oil generation, as it is more expensive than gas generation.

Bjorn Inge Vik, Senior Carbon Analyst at Thomson Reuters, noted: “Coal to gas switching in the UK could trigger demand for gas in the order of 1.5 - 2 billion m3 per month, providing support for Asian spot LNG prices at roughly US$6.6±1.5/million Btu. Fuel switching in Japan and South Korea could also trigger additional gas demand, but this will occur at lower levels, or it may be less predictable and reactive.”

Edited from Point Carbon press release by Katie Woodward

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