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BG to fizzle on LNG slow growth pace
By Dinakar Sethuraman |
January 20, 2009, Tuesday
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Print Edition
Print Edition
BG Group Plc, the liquefied natural gas market's seller of last resort and the biggest winner when long-term contracts couldn't meet demand last year, is poised for a fall.
The LNG market is growing at its slowest pace in 28 years as the global economy slows.
Forward contracts show that prices may slump about 70 percent, and rivals plan to increase supplies by 33 percent, according to Citigroup Inc.
"Spot LNG prices and sales will suffer," Kenan Najafov, a London-based analyst at BNP Paribas SA, said in a phone interview with Bloomberg News. "BG maximized exposure to spot LNG prices, contrary to companies like Royal Dutch Shell Plc, BP Plc and Total SA who favor long-term contracts with lower risk and lower value." Earnings at BG, which 19 of 25 analysts rate a buy, may decline 27 percent to 2.1 billion pounds (US$3.1 billion) in 2009, assuming crude oil at US$60 a barrel and United States natural gas at US$6 per million British Thermal Units, said Jason Kenney, an analyst with ING Wholesale Banking. Crude has tumbled more than 70 percent to US$36.35 a barrel from a July record and US gas have plunged 66 percent to US$4.72 per million BTU.
Recessions in the US, United Kingdom and Japan and more than US$1 trillion in writedowns and credit losses since the start of last year may send crude oil as low as US$30 a barrel in the first quarter, Goldman Sachs Group Inc said. US gas prices are estimated at US$5.35 per million BTU in summer 2009, down 61 percent from July 2008, the bank said.
BG, the biggest supplier of spot LNG shipments to Asia, stands to lose profits as Korea Gas Corp and Tokyo Electric Power Co, the world's biggest buyers of the fuel, gain because of lower costs.
The utilities may save more than US$5 billion a year for every US$1-per-million-BTU drop in LNG prices, according to data compiled by Bloomberg News based on annual purchases in BP's Statistical Review of World Energy 2008.
LNG, which is natural gas chilled into liquid so it can be transported by ships, generates about 24 percent of Japan's power and burns cleaner than coal or fuel oil.
The LNG market is growing at its slowest pace in 28 years as the global economy slows.
Forward contracts show that prices may slump about 70 percent, and rivals plan to increase supplies by 33 percent, according to Citigroup Inc.
"Spot LNG prices and sales will suffer," Kenan Najafov, a London-based analyst at BNP Paribas SA, said in a phone interview with Bloomberg News. "BG maximized exposure to spot LNG prices, contrary to companies like Royal Dutch Shell Plc, BP Plc and Total SA who favor long-term contracts with lower risk and lower value." Earnings at BG, which 19 of 25 analysts rate a buy, may decline 27 percent to 2.1 billion pounds (US$3.1 billion) in 2009, assuming crude oil at US$60 a barrel and United States natural gas at US$6 per million British Thermal Units, said Jason Kenney, an analyst with ING Wholesale Banking. Crude has tumbled more than 70 percent to US$36.35 a barrel from a July record and US gas have plunged 66 percent to US$4.72 per million BTU.
Recessions in the US, United Kingdom and Japan and more than US$1 trillion in writedowns and credit losses since the start of last year may send crude oil as low as US$30 a barrel in the first quarter, Goldman Sachs Group Inc said. US gas prices are estimated at US$5.35 per million BTU in summer 2009, down 61 percent from July 2008, the bank said.
BG, the biggest supplier of spot LNG shipments to Asia, stands to lose profits as Korea Gas Corp and Tokyo Electric Power Co, the world's biggest buyers of the fuel, gain because of lower costs.
The utilities may save more than US$5 billion a year for every US$1-per-million-BTU drop in LNG prices, according to data compiled by Bloomberg News based on annual purchases in BP's Statistical Review of World Energy 2008.
LNG, which is natural gas chilled into liquid so it can be transported by ships, generates about 24 percent of Japan's power and burns cleaner than coal or fuel oil.
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