The Asian LNG spot price is expected to peak at an average of $16.90/MMBtu in 2013, with the LNG market expected to tighten further and freight rates to remain high, Goldman Sachs said in a report released late Monday.
"The Japan Korea Marker (JKM) will rise $1.80/MMBtu in 2013 to average near $16.90/MMBtu, but then start to decline towards $14.20/MMBtu in 2014, primarily driven by a significant increase in the global LNG tanker fleet and further supported by Japanese nuclear restarts," the bank said in its Global Gas Watch report.
The JKM is the benchmark Platts LNG assessment for spot cargoes delivered to Japan and South Korea -- the largest and most concentrated spot market for LNG in the world. The monthly JKM assessments, which reflect month-ahead delivered prices, are an average of the daily JKM price assessments by Platts.
According to Platts data, the JKM averaged $15.11/MMBtu in 2012, and this has risen to an average of $18.11/MMBtu so far this year.
"Going forward, the global LNG balance for 2013 looks even tighter than in 2012, as there is a high degree of uncertainty around the start date and ramp-up of the two liquefaction projects expected this year, namely the Angola LNG and Algeria's Skikda LNG facilities," Goldman Sachs said.
It added that low LNG ship availability this year would lead to an average freight rate -- from the Middle East to Asia -- of $113,000/d in 2013, before falling to $90,000/d in 2014.
"Freight rates, which are an important component of LNG costs, increased substantially, as the average transport time in the market increased, effectively reducing the availability of transport capacity," the bank said.
Last year, strong North Asian LNG demand -- due to lost nuclear power capacity in Japan -- resulted in many Atlantic LNG cargoes being diverted to North Asia. This meant longer shipping voyages, which resulted in tighter vessel supply.
According to Platts data, the Asia-Pacific Day Rate -- which reflects charter rates for LNG carriers in the region -- averaged $126,286/d in 2012, but has fallen to an average of $120,000/d so far this year.
Goldman Sachs said that a tight LNG shipping market is expected to persist in the near term, but added than several new vessels are expected to be delivered, particularly from late 2013 to 2014.
"Tanker order books indicate that 24 new tankers will be delivered in 2013, and 29 in 2014, leading to a 14% increase in the total size of the fleet relative to Q4 2012," the bank said.
The restart of Japanese nuclear power plants is also expected to lower the country's appetite for LNG, and demand for ships to carry spot cargoes to North Asia, the bank said.
It said that Japanese nuclear restarts could lead to a 3 billion cu m/year (2.2 million mt/year) decrease in LNG demand in 2014, but added that the timing of the nuclear restarts remains uncertain.
Beyond 2014, the bank expects spot LNG prices in Asia to remain at a sustained level of less than $12/MMBtu due to increases in transport capacity from new-build LNG carriers and the startup of several Australian LNG projects.
