Strong Asian demand to cap European gas restocking pace

LONDON (ICIS)–Strong LNG demand in Asia will continue to limit European storage restocking, with the east Pacific continuing to attract spot LNG cargoes at a high rate.

According to an ICIS LNG demand forecast, China’s LNG consumption is expected to total 6.4 million (m) tonnes in June, up 22% year on year, while July is forecast 28% higher year on year.

Japan is on course for an annual increase in July, with ICIS expecting the country to import 6.2mt, up 7%.

The region has recorded large price gains for delivered LNG, with the front-month ICIS East Asia Index (EAX) above $12/MMBtu on 14 June, nearly $10/MMBtu higher year on year.

A strong recovery in spot prices and surging demand has pulled flexible LNG supply into the Pacific basin which has prevented European storage stocks from refilling at a higher rate. With this set to persist, European gas prices for delivery across the remainder of summer will remain high in order to compete with Asia and due to strong demand for injections.

Asia drags EU storage

Global gas prices have become increasingly interlinked due to the rapid expansion of the LNG market.

With relatively low levels of conventional gas storage capacity in Asia, the region relies heavily on LNG supply.

A cold winter meant Asia imported 131m tonnes of LNG between October 2020 and March 2021, 11m tonnes higher a year before.

In January, when Asia spot prices shattered records and rocketed to $31/MMBtu, the region imported 25m tonnes, an all-time high and 13.3% higher year on year, LNG Edge data showed.

During the same month, Europe’s LNG imports plummeted to just 3.2m tonnes, less than half of what was delivered to the region a year earlier as spot cargoes were diverted to Asia.

This had a large impact on storage withdrawals across Europe – also experiencing cold weather – with shippers removing 24.5 billion cubic metres (bcm) in January to supply cold weather.

This was 6bcm higher than the previous year and 4bcm higher than the five-year withdrawal average for January.

A continuation of this trend has persisted through the first half of summer with Asia importing 19.7m tonnes in May, 16% higher year on year and 18.1m tonnes in April, 9.2% up, LNG Edge data showed.

Europe’s offtake of LNG in May was 6.1% down year on year and largely unchanged for April.

Gas was actually taken out of EU storage in April, whereas it was placed into sites across all of the previous three years.

In May the daily injection rate averaged 264mcm/day, 80mcm/day lower than May 2020 and 113mcm/day below May 2019.

In order for European storage sites to reach their historical minimum – 775bcm in 2018 – by the start of October, shippers will need to inject at an average rate of 119bcm/month. This rate would nearly match the rate over the same period in 2018.