South American competition, production woes drive Asian LNG price spike
East Asian LNG prices surged higher over the past four weeks in response to competition from Argentina and Brazil as well as a recurrence of output problems at LNG plants.
The ICIS East Asia (EAX) March assessment closed on Friday 15 February at $21.413/MMBtu, marking a record high for the EAX contract since the Asian spot LNG benchmark was established in June 2010.
The March EAX assessment rose $2.913/MMBtu since it had opened as the front-month contract on 16 January. April EAX was softer over the same timespan, gaining $2.125/MMBtu to reach $20.025/MMBtu by 15 February.
As March opened as the front month on 16 January, several East Asian buyers stated their intention to defer spot LNG purchases until the second quarter in preference to competing with South American buyers at prices above $18.00/MMBtu.
The highest bids for March into East Asia were recorded at $18.00/MMBtu, while the lowest offers were heard at $19.50/MMBtu.
The impasse was driven by differing expectations; Asian buyers cited balanced inventories as short-term requirements were dampened on improved production. Meanwhile, sellers pointed to the fact that several uncovered short-term requirements in Brazil and Argentina were making sub-$20.00/MMBtu sales into Asia uneconomical.
On 21 January, Argentina's recently nationalised oil company YPF opened the latest in a series of tenders, seeking two cargoes for February delivery in a move that further tightened availability. The move also maintained pressure on Brazil's Petrobras, which had been buying aggressively on the back of a drought that substantially reduced the country's hydroelectricity production.
ICIS' Front Month South America Index* rose to $16.957/MMBtu, well within $2.00/MMBtu of the equivalent EAX contract, and offered Atlantic Basin producers higher prices on a netback basis (delivered price minus shipping costs).
The competition for cargoes intensified as Turkish state buyer BOTAŞ was understood to have raised its own bid levels above $16.00/MMBtu in line with netbacks to Asia for March cargoes.
By the week starting 21 January, East Asian buyers were obliged to respond in kind as two trades were heard into Japan around the $19.00/MMBtu level.
On 22 January, bids and offers showed signs of convergence with the highest bid for the second half of March received at $19.00/MMBtu, while the lowest offer for the period stood at $20.00/MMBtu.
After reaching a brief plateau just above $19.000/MMBtu, the March EAX regained upward momentum in early February on broad-based demand and a recurrence of production problems at LNG plants.
On 26 January, the Tangguh LNG plant was obliged to shut its 3.8m tonnes per annum second production train for five days as a precautionary measure.
Contractual deliveries from the North West Shelf project were also reduced in early February because of cyclone activity.
On 6 February, the Nigeria LNG plant declared force majeure on LNG deliveries after a gas leak at the Soku feed gas plant reduced flows to the liquefaction complex by 45%.
The outage at the plant, which has become a key supplier of flexible volumes to Asia, spurred a further spike in prices. In the week-ending 15 February, March EAX gained $1.488/MMBtu to reach $21.423/MMBtu.
On Friday, the lowest offers for both H1 and H2 March delivery were recorded at $22.00/MMBtu, while the highest bids for the period stood at $19.50/MMBtu.
The highest-priced half-month assessed on Friday was H2 March assessed at $21.425/MMBtu. A steep backwardation was expected into April, with H1 April assessed at $20.325/MMBtu and H2 April at $19.725/MMBtu.
*An arithmetic average of delivered ex-ship assessments into Argentina, Brazil and Chile
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22 Aug 2014 21:28
22 Aug 2014 21:28