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Approaching Winter Season Provides Little Support For Asian Spot LNG Prices

Approaching Winter Season Provides Little Support For Asian Spot LNG Prices
LNG Carrier Fuji
Image by
Ken Hodge

Prices for spot liquefied natural gas (LNG) in Asia continue to cause problems for major producers of the fuel. Prices this year dropped to three year lows amid a persistent supply overhang coming from more production in Australia, the US, Russia and other countries.

The supply overhang has met tepid demand due to more moderate temperatures in North Asia, home to around two thirds of global LNG demand. Most LNG in Asia is used for power generation and mild temperatures either in the summer or in the winter reduces demand for the fuel and puts downward pressure on prices.

Usually by October, however, major buyers, mostly large utilities ramp up procurement of the fuel in anticipation of colder weather. Yet, this year that dynamic has yet to unfold as anticipated. Major buyers in the world’s top three LNG importing countries, Japan, China and South Korea are still reporting ample stocks going into the winter season.

China, for its part, has improved its gas procurement and storage abilities since two years ago when it was caught flat footed during an unseasonably cold 2017 winter season that saw it run out of gas, forcing energy planners to revert back to partial coal usage for power generation and heating, as well as temporarily shut down key industries in the north for periods of time to divert much needed gas supply to residential end users. 

As a point of reference, prices for spot LNG in Asia maxed out in February 2014 at over $20 per million British thermal units (MMBtu). At the time there was still a somewhat limited supply of the fuel, while Japan, in the aftermath of the Fukushima nuclear disaster that eventually shutdown all of the country’s nuclear reactors needed for power generation, increased LNG procurement at a record level.

Markets began pivoting around 2016 when Australia’s massive LNG projects started coming on line, and now with the US recently bypassing Malaysia to become the world’s third largest LNG producer, markets will likely remain oversupplied until around 2023. Royal Dutch Shell, the world’s largest buyer and seller of LNG, sees things a bit differently, claiming that increased LNG demand globally could end the supply overhang sooner. However, Shell, which last quarter posted dismal profits due to lower LNG prices, usually paints a more optimistic picture of market conditions if for no other reason than to appease investors.

However, prices for November loading have at least increased since this summer when they dipped below the $4/MMBtu price point. The average LNG price for November delivery into northeast Asia was estimated at $5.55/MMBtu down from $5.75/MMBtu last week. One cargo sold to China by trading house Vital reportedly fetched $6.25/MMBtu. 

In Europe, Dutch front-month prices, a European benchmark, traded at around 16 euros per megawatt hour, or $5.15, compared to $3.51 at the end of September, Reuters reported on Friday. That was far below the $9.38 they fetched at the same time a year ago.

European countries such as France, Austria and Poland reported gas storage 100% full with tanks across the continent 97.4% full on average, data from Gas Infrastructure Europe showed on Friday.

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