Asian LNG price surge kept in check by competing fuels

13 December 2013 15:54 Source:ICIS

Spot LNG prices in Asia stabilised at around $19.00/MMBtu over the past four weeks, as East Asian buyers resisted paying substantial premiums to oil parity for the fuel. Tight availability and broad-based demand supported prices throughout the period.

The ICIS EAX January assessment closed on 13 December at $19.156/MMBtu. This represented a $0.368/MMBtu rise since it opened as the front-month contract on 18 November, but a slight fall from its peak of $19.294/MMBtu on 5 December. The February contract rose by $0.069/MMBtu over the same period to $19.331/MMBtu.

At the start of the period, Asian buyers expressed hopes of keeping prices below $19.00/MMBtu, following the rapid price rise experienced at the start of the winter. The lowest offer on 18 November was recorded at $18.80/MMBtu and two Japanese buyers were heard to have secured cargoes at below $19.00/MMBtu in the week ending 22 November.

However, a lack of free-on-board cargoes, widespread East Asian demand and gradual rise in crude prices tipped the balance in favour of sellers.

Production was curtailed by the overrunning of planned maintenance at Sonatrach’s new Skikda train, while the Algerian state gas producer also declared force majeure at the first two phases of its Arzew facility in early December, according to sources. Scheduled maintenance at the 5.2mtpa Angola LNG plant and RasGas train 7 also reduced the pool of tradable LNG.

On the demand side, China’s CNOOC and Petrochina remained active in the market despite the latter’s deal securing a string of cargoes from a Qatari supplier. Japanese utilities faced pressure to stay in the market due to strengthening industrial sector power demand.

Meanwhile, ICIS Dated Crude oil prices crept up from $108.06/bbl ($18.686/MMBtu) on 18 November to $111.15/bbl ($19.221/MMBtu)

On 25 November, Asian utilities submitted bids as high as $19.00/MMBtu for H1 and H2 January delivery for the first time in the winter. Having accepted the new pricing threshold, the highest-bidding utilities maintained their bids for January at this level for the duration of the period. While not all Asian buyers had the same switching capability, several utilities cited the cost of fuel oil at the same $19.00/MMBtu price as grounds to cap their bids.

On 28 November, the market faced further pressure as South Korea’s 576MW Kori No 1 reactor, was shut down for safety reasons, pushing South Korea’s KOGAS back into the spot market.

By the beginning of December, at least two East Asian buyers outside Japan were understood to have paid around $19.10-19.20/MMBtu range for January spot cargoes.

East Asian buyers faced further competition from Thailand’s PTT, which secured an initial four cargoes for December-February, before tendering for two more. Turkish incumbent BOTAS was also understood to have secured a winter string of cargoes from Qatar.

However, South American competition was muted in comparison with the previous year as Argentina’s ENARSA was heard to defer some cargoes for late 2013 delivery into 2014. Demand from Brazil’s Petrobras has been robust through 2013, but is expected to be moderated by the arrival of the country’s rainy season, which should replenish hydroelectric stocks.

By 10 December, softening crude prices, normal seasonal temperatures in most East Asian markets and the expectation of better production availability from late January onwards relieved some of the pressure on prices.

On 13 December, the H1 January EAX contract was assessed at $19.100/MMBtu, H2 January at $19.213/MMBtu, H1February at $19.300/MMbtu, H2 February at $19.362/MMBtu and H1 March at $18.763/MMBtu.

The wide spread between Asian and European prices allowed Europe’s terminal capacity holders to continue to capitalise on reload opportunities. The average premium of the EAX to the equivalent January Northwest Europe Index (NEX) contract stood at $7.794/MMBtu in the four weeks to 13 December.

From 16 November to 13 December, there was one full-scale commercial reload from the Gate terminal, two from Zeebrugge and five from Spain with the majority destined for either Asian or South American markets. Simon Ellis

By Simon Ellis