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BG earnings suffer as spot prices slide
19.01.09
Plunging spot prices for liquefied natural gas will hit earnings hard at BG Group, analysts are warning.
Gas prices are in a range of $5 to $7 (£3.39-£4.75) per million British Thermal Units, down from $18 per million BTU paid by the Japanese in October.
"Spot LNG prices and sales will suffer," Kenan Najafov, a London-based analyst at BNP Paribas told Bloomberg.
"BG maximised exposure to spot LNG prices, contrary to companies like Royal Dutch Shell, BP and Total who favour long-term contracts with lower risk and lower value."
BG reaped big rewards when the spot price was high due to strong demand in Asia. But that is now changing. The LNG market is growing at its slowest pace in nearly 30 years amid the global recession.
Forward contracts show prices may slump by about 70%, and BG's rivals plan to increase supplies by 33%, according to Citigroup.
Earnings at BG may decline 27% to £2.1 billion in 2009, assuming crude oil at $60 a barrel and natural gas at $6 per million BTU, said Jason Kenney, an analyst with ING Wholesale Banking.
