Asia’s spot LNG prices rise to $8.20/MMBtu on global demand

Asia’s spot LNG prices rise to $8.20/MMBtu on global demand

Spot LNG prices across northeast Asia are held at or above the $8.00/MMBtu level for delivery in September and October.

While both months are traditionally bearish periods for buyers in South Korea, Japan, China and Taiwan, demand from India, Pakistan, Egypt, Jordan and Argentina has largely limited the availability of flexible volumes.

According to traders, there is only a slight contango across September and October, while a recent deal for a December delivery to Japan was concluded at $8.30-8.40/MMBtu.

A bid for an optimisation cargo required for delivery to Japan in September was at $8.00/MMBtu, while offers are at $8.40-8.50/MMBtu, one trader in Singapore said.

As a result, the ICIS East Asia Index (EAX) for spot LNG on a DES (delivered ex-ship) basis was assessed on 4 August at $8.20/MMBtu for September and $8.25/MMBtu for October.

Sellers, on the other hand, have limited volumes to offer to Asia for September and October delivery, largely because of other markets.

“I do not see much physical LNG demand from utilities in Asia, but the market is holding steady due to requirements elsewhere,” one trader said.

Arbitrage erosion

Global spot LNG prices have converged over the course of past two weeks, with most spot transactions for September delivery concluded at around $8.00/MMBtu.

This was the case with Jordan’s National Power Electric Co (NEPCO) awarding a two-cargo tender to Switzerland-based energy trader Trafigura, a cargo purchased by India Oil Corp (IOC) as well as Argentina’s state-owned LNG buyer ENARSA’s September awards.

It is thought that the erosion of arbitrage between the Atlantic and Pacific basins would be a temporary feature in this market.

A number of recent and ongoing tenders from Argentina, India, Pakistan, Jordan and Egypt means those with access to flexible volumes in Nigeria, the Middle East or Europe are likely to seek buyers in these markets.

Any flexibility from Australian producers, on the other hand, is likely to be exercised on an FOB (free on board) basis. Buyers of Australian volumes have a choice of delivering the cargoes either to India or Japan, as the cost of shipping is very similar.

Limited demand in northeast Asia means additional requirements are presently covered by spot volumes from Indonesia, Malaysia and Papua New Guinea.

“If a seller has originally set up a position in Japan on the basis of a Nigerian cargo, he is likely to cover that with a Pacific basin cargo now as there are better netback opportunities closer to Nigeria,” one portfolio seller said.

India’s buyers largely out-priced

Demand from India’s state-owned LNG buyers, including GAIL, GSPC and IOC, continues to be robust.

However, any prices in excess of $7.70/MMBtu will result in losses in the downstream market for GAIL and GSPC, ICIS understands, while IOC has purchased a September cargo at above $8.00/MMBtu.

“There is clearly short-term demand in India, but it’s very price-sensitive. LNG is still relatively expensive compared with crude and crude products,” one seller said.

In the current market, Indian LNG buyers will opt for competitive fuels, but some simply have limited or no fuel-switching capabilities and need to buy LNG,” the source added.

The Indian buyers are still trying to secure spot LNG on a netback basis to Japan’s prices, a trader said, but the economics are not working.

As suppliers can choose to offer their cargoes to several markets for September and October, India is currently competing against the Middle East and Asia.

Pacific’s production could increase

The Sakhalin-2 project in Russia could ramp up production shortly, after completing scheduled maintenance in late July.

This could give Anglo-Dutch major Shell and Russian incumbent gas producer Gazprom more opportunities for optimisation. Both entities have priority access to excess production at the facility.

The Australia Pacific LNG (APLNG) project in Queensland is due to start commercial production in September, with a commissioning cargo expected to be marketed in late August on a spot basis.

One Singapore-based trader said it is unclear how much supply APLNG could add to the global balance as new production facilities often face technical issues at the time of start-up.

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