Fear of Another Price Spike Grows in Asia

Copyright © 2021 Energy Intelligence Group

After a few bearish days, Asian spot LNG prices are on the rise once again, prompting fear that another spike could happen sooner than later in the world's largest LNG demand center.

Weak demand and fuel switching pushed the Japan-Korea Marker (JKM), Asia’s de facto benchmark, back to the mid-$30 per million Btu territory at the end of last week after having crossed the $56/MMBtu threshold — a level never reached before.

But the persistent mismatch between supply and demand, low inventory levels in Europe, strengthening European gas hub prices, and renewed interest in winter cargoes for Asia, have put Asian spot LNG prices back on their upward trend.

In addition, shipping rates have increased from $60,000-$70,000 per day to above $135,000/day for a standard size LNG carrier of 160,000 cubic meters, a source told Energy Intelligence. This is due to the limited number of ships in the Pacific at the moment.

Singapore Reacts

The supply crunch is also prompting Singapore LNG, the operator of Singapore’s sole LNG terminal, to explore options to increase LNG inventory at its terminal.

Singapore LNG did not want to comment further on whether it is looking at buying cargoes. If this is the case, it would likely be a first as Singapore LNG does not hold a license to import LNG into Singapore. Only four companies, namely Exxon Mobil, Pavilion Energy, Sembcorp and Royal Dutch Shell, have a license to import LNG into Singapore.

How Will Russia React?

All eyes are now on Russia as LNG traders are waiting for the outcome of Ukrainian gas pipeline capacity auctions slated to happen next week.

If Gazprom books more capacity, something it has been reluctant to do in recent months, then volatility could ease both in Europe and Asia.

Russia desires to do what can be done as per available capacity, Russia’s Deputy Energy Minister Pavel Sorokin told the Energy Intelligence Forum after Russian President Vladimir Putin said that Gazprom never refused to increase supplies to its customers if they requested more.


Demand remains weak in Asia due to historically high prices, but the JKM market-on-close window is buoyed with trading houses, especially Trafigura and Vitol, seeking cargoes, an activity that could indicate short covering (see graph).

A growing number of Northeast Asian buyers are also believed to be showing interest in cargoes with delivery from late November to December in anticipation of a colder than usual winter predicted by a growing number of meteorological agencies.

Australia’s Bureau of Meteorology has increased the likelihood of a La Nina phenomenon from 50% to 70% over the October-April period. La Nina typically brings colder and wetter weather.

This comes after the US National Oceanic and Atmospheric Administration said there is a 70%-80% chance of a La Nina phenomenon while the Japan Meteorological Agency said there is a 60% chance.

“Higher demand for heating could add up to 20 Bcm in Europe and 10.5 Bcm in Asia, resulting in lower LNG imports available to Europe. That would suck up all the gas left in European storage, and gas prices could go much higher than we’ve seen so far,” according to Massimo Di Odoardo, Wood Mackenzie's head of global gas analysis.


Even with greater gas flow from Russia, a blip on the supply side is likely to have a significant impact on prices as the market will remain quite tight.

In this context, Australia’s Bureau of Meteorology's expectation of an average, or slightly above average, cyclone season with an increased risk of widespread flooding over the east and north is not good news as it could impact Australia’s production.

Five of the 10 LNG plants in operation in Australia, namely Australia Pacific LNG, Queensland Curtis LNG, Gladstone LNG, Darwin LNG and Ichthys are located in the northern and eastern parts of the country. They have a combined production capacity of 37.4 million tons per year.

In addition, half a train of Santos Gladstone LNG will be under maintenance from Oct. 19 to Nov. 4 while Train 3 and Train 9 of the Petronas Bintulu plant will be under maintenance for three months starting from Nov. 1. About 10 cargoes are expected to be lost from Bintulu over the November to February period.

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