East Asian spot prices rebound in the face of Middle East and North African competition

20 October 2015 | Simon Ellis, LNG Analyst


East Asian spot LNG prices staged a partial recovery in early October as the region’s buyers responded to sustained competition from Middle East and North African (MENA) markets. However, tepid demand and the onset of term deliveries from a wave of new Asia-Pacific LNG plants restricted substantial winter spot procurement.

The East Asia Index November contract closed on 15 October at $6.90/MMBtu, representing a $0.25/MMBtu fall since November opened as front-month on 16 September. The index recovered from a low of $6.55/MMBtu on 6 October as the region’s prices firmed up in a series of tenders.

In late September, the EAX also traded at a discount to ICIS’ newly established Middle East and North Africa Index (MENAX) – an average of ICIS delivered ex-ship assessments for Egypt, Dubai, and Kuwait.

At the start of the period, demand in East Asia provided a mixed picture, as power plant outages brought some utilities back to the market in northeast Asia. However, wet weather conditions suppressed air conditioning demand in the south of the region.

South Korea’s KOGAS and utilities in Japan had some demand due to nuclear plant maintenance and flooding damage at hydroelectric plants respectively. Demand in Taiwan was limited on the back of recent typhoon activity.

However, the glut of supply projects expected online over winter continued to cast a shadow over the market. Tender cargoes for early winter delivery were awarded from Australia’s newly commissioned GLNG project, North West Shelf LNG and Indonesia’s Tangguh LNG plant. Meanwhile, the start of commissioning at the US Gulf’s Sabine Pass train 1 and return to production of Indonesia’s Donggi Senoro LNG plant in late September added to the bearish sentiment.

In mid-September, a Japanese electricity utility was heard to have closed cargoes for November and December delivery at just below $7.00/MMBtu. By the end of the month another deal was recorded into the region in the $6.60s/MMBtu.

By early October, Asian prices showed signs of creeping back upwards in response to strengthening crude prices and the demand pull from the Middle East, which saw several Asia Pacific cargoes head to the region. At the start of the month, Egypt’s EGAS and Jordan’s NEPCO closed short and mid-term deals starting in November 2015 and January 2015 respectively.

Prices for delivery to Egypt were assessed at a strong premium to East Asia for much of the period as traders, which had locked in mid-term deliveries at higher crude prices earlier in the year, were able to pay premium rates to secure cargoes to fill their positions. Meanwhile, spot procurement in markets west of Suez including India, Pakistan and Dubai added further upward pressure.

By mid-October, sentiment in East Asia showed signs of firming in response to competition as tenders from Australia and Indonesia were settled in the mid-to-high $6.00s/MMBtu.

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