Double whammy for ASX LNG Stocks

  • Feb 05, 2020 AEDT
  • Team Kalkine
Double whammy for ASX LNG Stocks

As the crude oil prices are still recovering from the Coronavirus tragedy that hit the prices as hard as almost 23% downslide from the January 6 peak price of US$70.72 a barrel. The Brent Crude prices on Nasdaq traded at US$54.72 a barrel on 4 January 2020. The Coronavirus issue also hit the LNG prices down, which was already reeling under the supply glut issue.

Asia: The Price Setting Market

The Asian market is driving the LNG prices down, with fears of lower demand from China, the second-largest importer of LNG, only behind Japan. In fact, the Japan Korea Marker, which is the Northeast Asia's benchmark for LNG, is trading well under $4.00/MMBtu, trading within the record low region.

Japan Korea Marker, Northeast Asia’s LNG benchmark Source: Refinitiv Eikon

The Asia market prices are driven down by the LNG prices due to warmer than expected Winter in the region. The further anticipation of weaker demand from China are plummeting the gas prices further down. The impact of Coronavirus would be observed from its effect on the industrial demand due to the extended lunar new year celebrations in China.

The Asia market prices are driven down by the LNG prices due to warmer than expected Winter in the region. The further anticipation of weaker demand from China are plummeting the gas prices further down. The impact of Coronavirus would be observed from its affect on the industrial demand due to the extended lunar new year celebrations in China.

As stated by the world’s largest LNG trader, Royal Dutch Shell CEO Ben van Beurden, “The coronavirus, I’m sure, will keep a lot of people on edge, and rightly so” and the gas trader is closely monitoring the situation and market activities.

Some of the Industry experts anticipate the Japan Korea Marker (JKM) might fall under US$3 per million British Thermal units during the upcoming summer season. The situation has arisen when the US, Australia, Qatar and Russian markets have attained stable gas production.

Global LNG Supply Glut: Will Australia play the volume game: Read Here

Now, we will discuss 5 gas producers from Australia, the most major one being the first-

Woodside Petroleum (ASX:WPL), an Oil & Gas major which controls almost 6% of the Global LNG supply. The major, unlike others companies, has some of the World's largest fixed-price supply contract already in place for which the supply contract prices might actually be higher than the current spot prices due to the current LNG prices and therefore acting as relief against the low prices. One of the cheapest LNG contracts was between North West Shelf operator Woodside Petroleum in 2002 for 25-year at a fixed-price contract now expected to be higher than the current spot prices, quite uncommon for such long term deals.

Recently, Woodside signed another long-term sale agreement with Uniper Global Commodities SE (Uniper) for the supply of LNG for 13 years starting in 2021. The deal is contingent on the final investment decision on the Scarborough development.

But still, Woodside would have to take the hit from the gas supplies which are not a part of the fixed price deals.

Woodside traded at $33.47 a share with a market capitalisation of $31.27 Billion on 5 February 2020. The stock has an EPS of $17.45, with an average volume of 2,185,251 shares.

Origin Energy (ASX:ORG) – An electricity and Gas producer and retailer reported fall in the December quarter revenues from the Australia Pacific LNG (APLNG) project, largely due to weaker gas prices. The Coronavirus outbreak further diminishes the chances of a huge comeback in the March quarter depending on the longevity of the issue. The oversupply due to the start of multiple large-scale projects in 2019 had already tightened the supply issue. The LNG from the attributable portion of Origin at the APLNG project sold at the average price of $9.38 per million British thermal unit (MMBtu), almost 11.5% lower than $10.59 last year.

The decline in revenue came even after the record output of 67.6 PJ from the biggest east Australian producer. Origin Energy owns a 37.5% stake in the Australia Pacific LNG project. APLNG is a joint venture between Origin, ConocoPhillips and Sinopec.

Origin traded at $7.80 a share with a market capitalisation of $13.6 Billion on 5 February 2020. The stock has an EPS of $0.688 and a dividend yield of 3.24%.

Oil Search (ASX:OSH), the largest Papua New Guinea Oil producer is facing heat on the P'nyang gas project after Papua New Guinea government called off the negotiations. The Papua New Guinea Prime Minister James Marape had already called off the negotiations with Exxon on the P’nyang field,stating the terms of the deal to be unfavourable for the nation’s economy.

The nation seeks to increase the LNG exports and the terms that the government seek might not leave the project profitable for Exxon and its partner Oil Search.

Oil Search would continue to negotiate the terms with the government and would accelerate the development of the project in case a resolution is agreed upon.

The low crude and LNG prices also coupled the effect on the company stock prices. Oil Search traded at $6.46 a share, with a market capitalisation of $9.9 Billion on 5 February 2020. The stock has an EPS of $0.398 and dividend yield of 2.97%.


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