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LNG Prices Are Expected To Remain Around $20 Per MMBTU For Asia In Winters

admin-augaf by admin-augaf
August 27, 2021
in Business
Reading Time: 4 mins read
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LNG Prices Are Expected To Remain Around $20 Per MMBTU For Asia In Winters

LNG Prices Are Expected To Remain Around $20 Per MMBTU For Asia In Winters

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Singapore August 27, 2021: Asia's LNG importers expect high spot prices this winter on the back of tight demand-supply fundamentals, which could derail procurement plans and increase power prices, especially if temperatures drop sharply similar to cold snaps seen in the previous winter season.

The key difference in 2021 is that LNG demand surged much earlier in the year on the back of the Chinese economy rebounding sharply from COVID-19 and spot LNG prices never dropped below $5.50/MMBtu, while last year they languished in the low single digits for several months.

As the northern hemisphere summer kicked in, spot LNG spot prices soared to an eight-year seasonal high, almost touching $18/MMBtu last week. The S&P Global Platts JKM for October was assessed at $17.460/MMBtu on Aug. 25.


A L S O || R E A D

Global Oil Demand To Peak By 2025: Platts Analytics


JKM LNG futures on ICE peaked at nearly $20/MMBtu last week for cargo deliveries during the coming winter through to January, reflecting broad-market expectations of tight market conditions persisting till the end of this year.

"Asia's spot LNG trade has moved into unchartered territory from this summer, trading for an extended time above oil-parity prices," Jeffrey Moore, Asia LNG manager for S&P Global Platts Analytics, said.

"Demand growth in China is expected to more than offset loss from Japan, Korea and Taiwan entering this winter with higher inventories. The market is running out of mechanisms to counter higher demand and higher prices," Moore added.

Trading activity

Trading activity has also started to reflect concerns about a steep price trajectory for the winter months, with market participants, who would have typically sold their oil-linked term cargoes to benefit from high spot prices, adjusting to the winter contango and pulling back from spot purchases. JKM futures indicate January prices of nearly $18/MMBtu.

The buying interest from Chinese importers is being closely watched.

Most Chinese national oil companies have covered their winter positions via strip tenders issued earlier in the year, such as state-run trader Unipec's procurement of around 40-50 cargoes for delivery in the second half of 2021 and February 2022, through a strip tender in April, traders said.

"The Chinese will have to buy more to inject for winter. I doubt they have fully prepared for winter due to higher demand throughout this year. They will likely buy October, the cheapest part of the winter period," a trader said, while a Beijing-based source said that Chinese importers are likely to see their long-term contractual volumes max out.

Other market players pointed out that taking a firm position could backfire if demand fizzles out.

One trader said that China's winter supply security is usually dependent on imported pipeline gas, and supplies have been stable this year. Another Beijing-based source said that Chinese importers were not ramping up purchases yet as they did not want a repeat of 2018 when there was an oversupply of cargoes and a warmer-than-usual winter.

"The NOCs are quiet, as they are already near balanced and are not desperate; only a bit of demand left from them. No North Asian buyer will gamble on winter this time round," another China-based source said.

A source with an NOC suggested that spot LNG may find support from private importers in China to cover winter positions as Tier 2 importers prefer to buy prompt because of the price lag between domestic and international gas prices.

Platts Analytics expects China's gas demand to continue to grow this winter, albeit at a slower pace compared to the year before, from an expansion in gas-fired power capacity, higher industrial requirements, and continuing coal-to-gas switching in residential and commercial sectors.

Inventories in focus

Gas inventories in North Asia and Europe will be key determinants of winter LNG prices.

LNG imports into Northeast Asia have been high so far this year, driven largely by increased demand in China and more recently cargoes heading to Japan and South Korea, and Platts Analytics sees South Korea, Japan and Taiwan entering winter with LNG inventories above three-year average levels.

However, a South Korean importer said most Korean buyers still have some requirement to restock in the run-up to winter, especially in October.

Market participants are more concerned about inventories in Europe, uncertainty clouding piped gas supplies from Russia and the support for gas prices like TTF that have kept JKM at elevated levels due to inter-basin contest for spot cargoes.

"Gazprom doesn't have sufficient gas to send to Europe, [suggesting] TTF … will be really robust for this winter," a Singapore-based trader said.

"Platts Analytics expects spot prices in Asia, as well as in Europe, to remain well-supported this winter on the back of low storage inventories in Europe, higher demand in Asia and South America, and a lack of strong LNG supply growth outside of the US," Moore said.

Key bearish factors are potentially milder winter temperatures, and a ramp-up in Russia's Nord Stream 2 supply, which would help normalize European storage stocks earlier than expected, he added.

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