Asian Spot LNG Prices Hit New High

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Northeast Asian spot LNG prices shot through the roof over the past two months, leaping $3.70 (25%) from end-November’s $15 per million Btu to a record $18.70/MMBtu this week. The previous high – as assessed weekly by LNGI sister publication World Gas Intelligence – was $18.40/MMBtu at end-May last year when summer buying commenced with vigor. Most Northeast Asian buyers from Japan, South Korea, China and Taiwan are in the market, regional traders say, but lack of cargo availability has caused them to boost buying ideas or defer cargo deliveries from March to April. Some Japanese and South Korean buyers with prompt March demand have raised bids from around $17/MMBtu at the start of January to the high $18s, “just under $19/MMBtu” this week, the traders say. Spot Atlantic shipments have headed to South America instead of the Far East since early January, attracted by high premiums Brazil’s Petrobras and Argentina’s Enarsa are paying as well as cost savings on shorter shipping distances. South American buyers are paying close to $18/MMBtu for cargoes, market participants say. In Brazil, Petrobras has been seeking LNG to partially replace hydropower as a power-generation fuel, after a warmer-than-expected summer season (December-March) and a prolonged drought in its northeastern region saw a plunge in water levels at hydroelectric plants. Argentina is also seeking LNG – it indicated an aim to buy some 80 spot cargoes this year. State Enarsa has issued at least two buy tenders this month for up to eight spot shipments, according to a Singapore-based trader (LNGI Dec.7'12). With Atlantic shipments snapped up, traders see virtually no cargo offers for Far East customers. The Singapore-based trader, however, says Qatar could have divertible cargoes it has yet to offer. Flexible shipments are also scarce over in the Pacific Basin – most of the LNG is already tied up in term contracts, and plants in anchor supplier Indonesia are under pressure to satisfy domestic gas requirements (see article). Given the competition, traders say Northeast Asian buyers must pay some $20/MMBtu to snag cargoes. They are, however, likely to resist such prices. Cargoes at $20/MMBtu would be more than oil parity, based on Wednesday’s UK Brent index of $112.62/bbl, a Japanese trader said. “A more realistic range would be in the high $18s to $19/MMBtu,” he said. Another Singapore-based trader agreed, saying buyers would be unwilling to pay prices that are higher than those for term supplies. Colder-than-expected winters in Japan, South Korea and China also stoked spot LNG demand and prices, as buyers sought to replenish depleting inventories. In South Korea, it was the coldest December in 45 years, the Korean Meteorological Administration said. The China Meteorological Administration also said China’s average temperature this winter is at its lowest in 28 years. This has prompted state China National Petroleum Corp. to say it would add 400 million cubic meters (290,000 tons) of spot LNG imports in the first quarter of 2013 (LNGI Jan.2'13). A Northeast Asian gas utility source, however, downplayed the effects of cold weather on demand. “There will always be speculation on cold weather spiking (LNG) demand, but it is unlikely to cause a massive jump (in requirements) beyond what has already been planned,” he said. Loss of nuclear output in Japan post-Fukushima – as well as in South Korea – continued to drive LNG demand. A South Korean nuclear reactor, the Uljin-1, was shut a week ago on technical malfunctions, right after two units closed since October for safety checks were restarted (LNGI Dec.20'12). Meanwhile, cost-sensitive Indian buyers find themselves priced out of the bullish market. Gail India started operations at its 5 million ton/yr Dabhol terminal but is unlikely to seek spot shipments, an Indian market source said. “It should buy one or two cargoes over the next two to three months, before the monsoon season starts up in June. And then from June to around December, the terminal would be closed,” he said (LNGI Jan.11'13). Energy Intelligence

Gas Demand, Gas Supply, Gas Prices
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