LNG Markets Analysis

Asian LNG price rally stalls despite plant outages

15 April  2015 | Simon Ellis, ICIS LNG Analyst

Plant outages in the Middle East and Pacific basin failed to re-inject tautness into an abundantly supplied market as March’s rally in LNG spot prices collapsed in early April. Mild spring weather and the ample availability of short-term contractual supplies were cited as weighing on sentiment.

The May ’15 EAX contract closed at $6.90/MMBtu on 15 April, having risen to a peak of $7.856/MMBtu on 30 March. Overall, the May ‘15 shed a total of $0.413/MMBtu since opening as the front-month contract on 16 March.

As the new front-month rolled over, sellers appeared confident of sustaining the rebound from the market’s mid-February lows. The lowest offer for H1 May delivery into the region on 17 March was recorded at $8.00/MMBtu, the highest level since January. Buyers edged only slightly towards sellers as the highest bid for the same period was recorded at $7.25/MMBtu.

Traders cited competition in South America, where state gas company ENARSA issued a tender for 11 cargoes for delivery from April to June, as a factor supporting prices.
Availability on the prompt was also constrained by shoulder-period maintenance, as well as a brief weather-related outage at Pluto LNG and temporary shutdown at BG Group’s QCLNG plant to bring the first train to full capacity. As such, some cargoes for April delivery were understood to be sold at over $8.00/MMBtu, reflecting a premium to expectations for May and June.

By late March, strengthening National Balancing Point (NBP) prices were also providing upward pressure on sentiment as buyers expressed concern at possible competition from new Floating storage regasification units (FSRUs) in Egypt and Pakistan for Atlantic basin cargoes.

But by the end of the month, waning demand and the onset of warmer-than-average weather reversed the trend. A combination of lower nominations under annual delivery programmes and expiring contracts left abundant volumes available at Pacific basin plants including Indonesia’s Bontang, Indonesia’s Tangguh and Russia’s Sakhalin.

The signing of a number of short-term contracts also reduced opportunities for spot sellers. Taiwan’s state gas monopoly CPC was heard to have secured a string deal from Qatari supply consortium RasGas from April to meet a part of an expected increase in demand from the power sector. South Korean incumbent KOGAS was also understood to have secured the 15 cargoes required for 2015 to meet its current demand projections.

By late March, most East Asian markets experienced warmer-than-average weather as temperatures in Tokyo were recorded at 21°C. Utilities in Japan reported issues with managing the build-up of stocks as high hydroelectric plant levels also weighed on prices.

At the end of the month, a Chinese buyer was heard to have secured a May cargo in the low $7.00s/MMBtu for May delivery, prompting buyers elsewhere in the region to lower expectations.

By 1 April, the highest bid in Japan for H2 May was cut to $6.50/MMBtu, nearly a dollar below the level of offers. While bid levels for H2 May recovered to $7.20/MMBtu on 2 April, supported by interest from China, prices continued to drift towards the new front month roll.

On 14 April, the Yemen LNG plant declared force majeure after fighting in the country came closer to the facility, although the immediate price response was limited, reflecting the length of long-term buyer KOGAS and anticipation of the precautionary move.

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