LNG Markets Analysis

LNG supply outweighs shoulder month demand

18 March  2016 | Ludovic Aldersley, ICIS LNG Analyst


Offers to deliver spot LNG across East Asia in April and May have become increasingly competitive as fresh production takes its toll.

The ICIS April EAX was assessed for the final time at $4.26/MMBtu on 15 March, having lost $0.54/MMBtu since rolling as front month on 16 February. There were similar losses on the May contract though the month on month backwardation that has been a recurrent theme in 2016 saw a brief hiatus in early March.

East Asia LNG VS NW Europe LNG Assessment April May

The downward trajectory, driven by strong LNG supply signals from the Pacific as well as Atlantic basins, was reversed in the second week of March as unexpected nuclear shutdowns in Japan and Taiwan reinstilled some competition among regional buyers.

Extra demand in East Asia coincided with a spot tender from Argentina seeking 16 deliveries between late March and the end of May. Offers from the Atlantic that had been marketed in East Asia at $4.40/MMBtu were subsequently removed and remarketed for prospective Argentine business.

Global supply however was aided by a return to production in Peru and Russia as well as the first LNG from the US. Preparations to export the second US cargo are underway as the first arrives in Brazil. Peru’s first cargo after a month-long outage went to South Korea.

Meanwhile Russia’s Sakhalin-2 LNG export plant resumed full production earlier than expected during the first week of March adding further pressure to the East Asian front month.

The Australia Pacific LNG (APLNG) plant also resumed production after maintenance but traders said it was not offering April production as commissioning cargoes had been committed.

With APLNG production being marketed from May however, traders were mindful of further production from the start-up of Gorgon in Australia as well as the long-anticipated re-start of Angola LNG in west Africa.

By mid-March, the front month East Asia contract also fell with Taiwan’s state-owned buyer able to conclude a second half of April delivery for $4.30/MMBtu.

The supply-driven weakness in spot LNG prices has been echoed at European gas hubs where an increase in Qatari deliveries and the potential arrival of US LNG has in part contributed to summer spot contracts firmly below $4.00/MMBtu.

Summer hub prices have also been influenced by the expectation that gas demand for storage injection will be lower this year. German stocks in the first half of March were 53% full, over 20 points higher than the same time last year, following a mild winter

From an LNG reload perspective, European spreads currently look most attractive to markets in the Americas and possibly Egypt but arbitrage opportunities appear limited. In contrast to four reloads from French terminals in February, only one has been scheduled in March.

On 14 March, the British NBP front summer tested new lows of 27p/th ($3.87/MMBtu) before edging up.

The ICIS Northwest Europe Index represents an arithmetic average of the delivered ex-ship (DES) assessments for Britain, France, Netherlands and Belgium. DES assessments are at a discount to hub prices to include the cost of regasification.

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About the Analyst

Ludovic Aldersley,
LNG Analyst, Global
Ludovic Aldersley has been the deputy editor of the global LNG team at ICIS Energy for the last two years, having worked his way up through the market reporting ranks over the previous two years.

He has reported on all aspects of the LNG value chain, from long-term sales and purchase agreement (SPA) transactions to the single-cargo delivered ex-ship (DES) and free on board (FOB) spot market, across a broad spectrum of geographies west and east of the Suez Canal. Within the value chain, his specialisation has been on LNG shipping and the charter market.

He has led the development of a charter database at ICIS Energy and has been closely involved in expanding the range of LNG services ICIS provides: from a one-stop shop window of analytics, to proprietary ship-tracking services, as well as a suite of small-scale LNG products for emerging markets.

He graduated with a Bachelor of Science Economics degree from the Universities of Bristol and Toulouse in 2007.

About ICIS

ICIS is the world's largest petrochemical market information provider and has fast-growing energy and fertilizer divisions. Our aim is to give companies in global commodities markets a competitive advantage by delivering trusted pricing data, high-value news, analysis and independent consulting, enabling our customers to make better-informed trading and planning decisions. We have more than 30 years' experience in providing pricing information, news, analysis and consulting to buyers, sellers and analysts.

With a global staff of more than 800, ICIS has employees based in Houston, Washington, New York, London, Montpellier, Dusseldorf, Karlsruhe, Milan, Mumbai, Singapore, Guangzhou, Beijing, Shanghai, Yantai, Tokyo and Perth. Some 350 of ICIS’s staff are journalists engaged in reporting market prices and news, and ICIS is fully committed to upholding the highest journalistic principles of verification, corroboration and authentication. ICIS has a compliance framework that along with its methodologies and business processes adheres to the requirements of the IOSCO PRA Principles.  

ICIS is a division of Reed Business Information, part of Reed Elsevier Plc.


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