Liquefied natural gas Global

The global LNG spot market over winter 2011/2012 turned out to be much less bullish than was originally forecast as a combination of a mild start to the winter, the locking in of mid-term supply deals and contagion from the eurozone crisis on Japan’s economic recovery eased the country’s LNG procurement drive.

The traditional first and second quarters’ spread is expected to be eroded this year by Japanese utilities’ continued requirements to procure additional LNG volumes on spot and short-term contracts to bridge the demand gap brought about by the loss of nuclear generation.

Global LNG spot demand and price levels in Q2 will be largely dependent on whether Japan’s electricity utilities are allowed to restart their nuclear plants before their peak summer demand season. The final two reactors of the 54-strong fleet are scheduled to be taken offline for inspections and maintenance in April, which will leave the country reliant on LNG and other fossil fuels.

The anticipated start-up of the Angola LNG project in Q2 2012 will bring more spot volumes onto the market, although prices are likely to be supported by a tight shipping market.

Japan’s LNG requirements, allied to emerging demand from counter seasonal buyers in South America, the Middle East and India, will support the price differential between hub-indexed markets in Europe and Asia.

China

China’s LNG prices fluctuated between mid-November and mid-February, influenced by the demand-supply situation in China.

Demand was weak in late November and this weighed down on LNG spot prices, which fell to yuan (CNY) 5,150/tonne in south China and CNY4,850/tonne in east China.

The arrival of winter brought about colder-than-expected weather, which forced upstream suppliers to reduce their feedstock supply of domestic LNG, as most of the pipeline gas supply was diverted to non-industrial users for heating purposes.

As a result of the lack of pipeline gas supply, many domestic LNG plants were shut and supply tightened. This caused spot LNG prices to rebound to CNY6,000/tonne in south China and CNY5,966/tonne in east China between mid-November and mid-February.

However, LNG spot prices then fell to CNY5,767/tonne and CNY5,767/tonne in south China and east China, respectively, because demand weakened with the approach of the Lunar New Year. Many end-users exited the market ahead of the 9-15 February holiday. Furthermore, some domestic LNG producers in southwest, north and southwest China chose to cut their EXW (ex-works) prices in order to boost sales and offload stocks before the holiday. Demand is expected to remain weak until late February.

Updated to mid-February 2013