Volatility Continues to Rock Asian LNG Market

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Volatility was the talk of the town in May. Asian LNG spot prices bounced up and down rapidly and unpredictably under the influence of a growing number of factors, although were still high for a shoulder season. This prompted many end-users to remain on the market sidelines until prices softened -- an expectation that did not materialize. Platts' Japan-Korea Marker, Asia’s de facto LNG benchmark, started out the month at $9.45 per million Btu. It closed on Jun. 1 at $10.98/MMBtu. In the interim, prices sometimes fluctuated by close to 90¢ in one day. Volatility is not unknown at this time of year as Northeast Asian buyers build up stocks ahead of summer, when cooling demand rises. The trend has been more pronounced this year after last winter’s spot market volatility prompted traders to seek cargoes earlier to avoid being caught short (WGI Apr.21'21). But the price strength has been particularly unusual. Such levels were last seen in 2014, before crude oil prices started to plunge, when cargoes were changing hands for $13-$14/MMBtu. It is “a new market,” one trader says, adding that what seems unusual today could become the new normal. “We should get used to such volatility and high prices,” another trader says. A third believes the trend could continue throughout the year. Asian spot prices have been lifted in part by the Dutch TTF gas benchmark. After starting May in the the low $8/MMBtu, European hub prices closed at $9.30/MMBtu on the first day of June, a level not seen since mid-2018. “Unseasonable, persistent cold weather and higher carbon prices have kept European LNG demand strong and injected an element of upside to Asia spot LNG prices,” Rystad Energy LNG analyst Kaushal Ramesh says. Other contributory factors have included government coal-to-gas switching policies, higher freight rates, and production problems at Australia’s 16.9 million ton per year North West Shelf LNG and the 7.6 million ton/yr Tangguh LNG plant in Indonesia. Such trends will likely persist, with the market becoming increasingly tight this winter, according to market sources and analysts. "Lower winter starting inventory in Europe, combined with high seasonal Asian demand, will result in increased competition for Atlantic LNG, including from the US, putting pressure on LNG prices. A repeat of last year’s extreme price crunch in Japan isn’t expected, but cannot be entirely ruled out,” according to consultancy Wood Mackenzie. Japan paid $24.71/MMBtu for a partial February cargo reloaded from France, and $22.92/MMBtu for a shipment from Equatorial Guinea the same month. China Keeps Imports on Upswing Northeast Asian LNG imports rose year on year for the fifth consecutive month in April, driven entirely by China. Regional imports averaged 16.1 million tons, lower than March but higher than April 2020, customs data showed. The 7.7% year-on-year rise has been attributed to a colder-than-expected winter and lower power output from alternative generation sources. Post-Covid-19 economic strength also bolstered imports. China overtook Japan as the region’s top LNG buyer in April, with volumes reaching 6.7 million tons, a 33.6% rise from 2020. The uptick is a result of post-Covid-19 recovery and extremely cold weather that lasted through mid-March. A cap placed by China on alternative generation output also helped support LNG burn. But year-on-year imports dropped in Japan, South Korea and Taiwan by 4.2%, 8.3% and 3.2%, respectively. The top LNG supplier to Northeast Asia was Australia, followed by Qatar and Malaysia. A Sharp Drop in Indian Demand Elsewhere in Asia, Indian LNG imports fell to 1.92 million tons in February from 2 million tons in January and a 5.6% drop from last year, according to latest customs data. Market sources say demand was also significantly lower in April and May as a dramatic increase in Covid-19 cases forced the world's fourth-largest LNG buyer into lockdown (WGI May5'21). With lockdown persisting, the outlook remains volatile. A source says it is hard to forecast whether demand will pick up in the coming weeks as that will hinge on the steps taken to lift restrictions. Qatar was the largest exporter to India in February, accounting for 58.3% of volumes. Singapore’s LNG imports dropped by 7.4% year on year to 348,480 tons in April, and by 21.6% from March. Import volumes in Thailand rose in April by almost 15% year on year, while Malaysia saw year-on-year imports drop by 7.5% that month. Yousra Samaha, Dubai, and Marc Roussot, Singapore

Gas Demand, Gas Inventories, Gas Supply, Gas Prices, LNG Prices
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