* LNG has always struggled to compete with coal on price
* Now, Australian coal has risen 95 percent this year, to
* But coal needs to rise above $100 for LNG to compete
By Henning Gloystein
SINGAPORE, Oct 17 The liquefied natural gas
(LNG) sector has watched with joy how thermal coal prices have
soared this year, hoping that the unexpected spike would at last
make LNG price competitive in Asia.
Although much cleaner than coal in terms of pollution and
carbon emissions, natural gas has struggled to make inroads in
Asia's power generation mix since it is typically more expensive
to produce electricity from gas than coal.
Despite an over 90 percent coal price rally to almost $100 a
tonne, and even with relatively low LNG prices of $6.50 per
million British thermal units (mmBtu) LNG-AS, versus $20 per
mmBtu in 2014, gas still can not compete with coal in Asia.
"Even though coal prices have reached $90 per tonne, it
(LNG) is still not competitive," said Chong Zhi Xin, principal
LNG analyst for Asia Pacific at energy consultancy Wood
For Asian LNG to become competitive, Reuters calculations
based on fuel and power generation costs show that coal - by far
the fuel most widely used for electricity generation in Asia -
needs to rise further from its current three-year highs, towards
$110 a tonne.
Coal prices are currently near that level. Pushed by a
domestic mining operation cap in China, which forced its power
generators to increase imports, prices for coal from Australia's
Newcastle port soared by 95 percent this year, to
almost $95 per tonne, in what has been one of the commodity's
steepest rallies ever.
"2016 has delivered its fair share of commodity market
surprises. But none have been more unexpected than the sharp
recovery in coal prices," Olly Spinks and David Stokes of Timera
Energy wrote in a note on Monday.
But a continuation of the rally, or even a sustained period
of coal at current prices, is seen as unlikely.
Goldman Sachs said in a note this month that "risks are now
skewed to the downside" for coal prices.
The coal price forward curve is already in deep
backwardation, where cargoes for future delivery are cheaper
than those for immediate loading, showing an over $20 per tonne
price fall between the fourth quarter of this year and the end
of 2017, to little more than $70 a tonne.
Coal futures for 2017 delivery are also much
lower than prompt cargoes at $66 per tonne.
"This is consistent with market expectations that some of
the shorter term constraints of 2016 will ease into next year,"
That would mean that LNG will continue to struggle to
compete against coal on price alone.
(Reporting by Henning Gloystein; Editing by Christian