Factbox: Oil price war, coronavirus bring uncertainty to natural gas, LNG

New York — The oil price war between Saudi Arabia and Russia, resulting in prices dropping by about one-third, is dragging LNG as well as US shale gas into the fray.

While JKM prices - the benchmark for spot-traded LNG in Northeast Asia -- rebounded from mid-month lows, the spread of the coronavirus into Japan and Korea, which together account for nearly a third of all LNG demand globally, continues to pose risk to LNG demand and prices, said Chris Midgley, head of global analytics for S&P Global Platts Analytics.

PRICES

**North Asian spot LNG prices ticked down, with plunge in crude moving wider energy complex lower.

**Platts JKM prices had started to recover marginally at the end of February, moving from $2.894/MMBtu on February 24 to $3.388/MMBtu on March 6; as of Monday, JKM fell almost 10 cents. The Platts JKM for April was assessed at $3.293/MMBtu Monday.

**Drop in crude will impact long-term LNG contract prices, though the impact on spot LNG is expected to be limited due to the weak correlation between JKM and crude oil prices, according to market sources.

**Roughly 70%-75% of the LNG market is still under long-term contracts, and exporters such as Australia, Qatar and Malaysia are expected to see revenues affected by lower oil prices.

**"With Brent falling more than 20% and approaching $30/b, this will certainly narrow the gap between term contracts linked to oil and JKM," said Jeff Moore, Asia manager at Platts Analytics.

**Low oil prices could affect negotiations of long-term contracts that are expiring over the next two to three years and the signing of new LNG supply.

**Goldman Sachs expects oversupply in the European gas market to require shut-in of US LNG exports, and ultimately a shut-in of Appalachia gas production, a trend that was already visible from a collapse in Chinese demand.

**Goldman cut its second and third quarter 2020 JKM price forecasts to $2.40/MMBtu and $2.70/MMBtu, respectively, from a previous forecast of $4.60/MMBtu.

TRADE FLOWS

**Weaker-than-expected demand in China had already impacted trade flows into the country before coronavirus exacerbated the situation; Flows into South Korea and Japan also are in focus amid virus.

**If Russia is targeting US shale and fighting for market share in crude oil, it could also mean an impact on US shale gas production and Russia's market share for global gas."The impact of this structural shift will of course be felt well beyond the oil market, with likely significant distress for energy exposed sovereigns and sectors. In particular, we do not expect the gas market to be spared," Goldman Sachs said in a report.

**Goldman said it expects oversupply in the European gas market to require a shut-in of US LNG exports, and ultimately a shut-in of Appalachia gas production, a trend that was already visible from the collapse in Chinese demand due to the coronavirus and slower gas demand.

INFRASTRUCTURE

**New contracting or partnerships tied to existing or proposed US LNG projects are reduced to a standstill, amid ultra-low prices in key end-user markets.

**A sharp drop in equity values exacerbates efforts to secure new loans or refinance existing ones: analysts.

**Dynamics suggest few, if any, second-wave US liquefaction projects proposed to start up around the middle of this decade will go forward this cycle.

**Platts Analytics forecasts that roughly 14.4 Bcf/d of LNG export capacity will be online in the US by the mid-2020s, representing only the slate of projects that have been.financed and are currently under construction.

**Beyond LNG, midstream companies are also feeling the heat. Kinder Morgan cannot be sure its proposal to build a third natural gas pipeline serving the Permian Basin will move forward amid challenges securing commercial support and volatile energy markets, according to a company executive.

**Incumbent midstream energy companies, such as LNG players and large pipelines, could benefit longer term if smaller, early stage companies are driven from the business, said Hinds Howard, CBRE Clarion portfolio manager for midstream and infrastructure strategies.