LNG Markets Analysis

Asian LNG prices inch up on outages and competition

15 May  2015 | Simon Ellis, ICIS LNG Analyst

Outages at key plants and robust buying interest from the Americas and Middle East saw Asia spot LNG prices edge upwards in early May. Despite northwest European prices remaining in sight of their Asian equivalents, participants renewed their interest in reloads from the region.

The ICIS June East Asia Index (EAX) contract was last assessed at $7.544/MMBtu on 15 May, representing a $0.438/MMBtu rise since it became the front-month contract on 16 April.

At the start of the period in mid-April, East Asian markets showed limited signs of any uptick in demand for the summer season.

South Korea’s KOGAS was reported to be out of the market as it awaited a government update on its procurement targets. The state import monopoly’s loss of volumes from the Yemen LNG plant, which declared force majeure on 14 April, was at least partially offset by the planned start-up of a 1GW nuclear plant in July.

In China, independent buyers were reported to have robust demand but were hampered by a lack of clarity over leasing third-party capacity at the state oil companies’ terminals. The focus of demand shifted to China’s state buyers themselves, Japan’s power utilities and portfolio sellers looking to optimise contractual commitments into the region.

The highest bid heard in Japan on 17 April was $6.650/MMBtu for second half of June delivery while the lowest offer was recorded at $7.100/MMBtu.

Despite the Yemen LNG outage, prices were kept in check in April by abundant supply availability from the Middle East and Pacific regions. Indonesia’s Pertamina closed a tender for two cargoes per month for the rest of 2015, Malaysia LNG sold seven cargoes for May-June delivery while the Australia Pacific LNG (APLNG) plant was expected to sell at least 12 cargoes from the start of operations until its contractual commitments began later in 2015. In the Middle East, in addition to supplies from Oman and ADGAS, Qatari sellers were also heard to be marketing significant additional volumes to long-term contractual buyers.

By the start of May, the market began to move in the direction of sellers. Competition from other premium markets stepped up as Mexico’s CFE awarded a tender for eight summer cargoes to the Altamira terminal, Argentina’s ENARSA launched a tender for seven cargoes from June-August, while Engro also tendered four cargoes at its new Port Qasim facility.

On 5 May, Pacific basin supply also came under pressure from an electrical fault at North West Shelf, which stopped all liftings at the 16.3mtpa plant until the time of writing, according to LNG Edge data.

As buyers turned their attention to July deliveries, bids were placed at a premium for those for June deliveries. On 14 May, the highest bid for H1 July delivery was placed at $7.300/MMBtu, while the lowest offer for the same period was heard at $7.900/MMBtu.

Participants discussed the possibility of Asian prices moving into backwardation as the summer peak receded, although the nearer curve remained in a shallow contango. On 15 May, H1 June EAX was assessed at $7.500/MMBtu, H2 June at $7.588/MMBtu, H1 July at $7.650/MMBtu, H2 July at $7.688/MMBtu and H1 August at $7.688/MMBtu.

The premium of June East Asian prices to the ICIS Northwest European Index (NEX) rose to $0.340/MMBtu to $1.129/MMBtu over the period from 16 April to 15 May.

Despite the relatively narrow premium, spot activity in Europe centred on opportunities to reload cargoes to premium markets in the eastern Mediterranean and Middle East. Three cargoes were reloaded from Iberian terminals in late April and early May, while one was lifted from Fos Cavaou and a second cargo was in the process of being reloaded at the Isle of Grain.

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