LNG Markets Analysis

New plants and nuclear restarts keep lid on Asian LNG prices

14 August  2015 | Simon Ellis, ICIS LNG Analyst

A healthy Pacific production outlook boosted by a first cargo from Indonesia’s Donggi Senoro LNG plant kept Asian LNG prices stable in the face of robust competition from Middle East buyers. The restart of Japan’s first nuclear reactor in two years also dampened sentiment.

The September EAX contract was assessed for the final time on Friday at $8.075/MMBtu, representing a fall of $0.125/MMBtu since it opened as the front-month on 16 July.

As the new front-month opened, sellers expressed hopes that strong demand from new entrants in the Middle East would extend the rally which began at the start of the month.

Demand from utility buyers in all four Asian markets was muted, with a wet summer in Japan stemming air-conditioning demand and promoting use of hydroelectric generation. Portfolio suppliers continued to exploit the premium of their crude-linked mid-term contracts over spot LNG levels to optimise deliveries into the region.

On 17 July, the highest bid in East Asia for H1 September delivery was recorded at $8.00/MMBtu, while the lowest offer into the region was $8.30/MMBtu.

Against a background of modest demand in East Asia, sellers continued to focus on a series of tenders from Egypt, Pakistan, Jordan and Argentina. Pakistan state buyer PSO and Jordanian power utility NEPCO both sought cargoes for September with Egyptian gas company EGAS seeking to close a tender for a second FSRU from October. Argentina’s ENARSA also awarded six tender cargoes for August and September delivery.

Asian buyers were shielded to an extent from price competition from the Middle East and the Atlantic Basin, by ample cargo availability in the Pacific region. Indonesia’s Donggi Senoro LNG plant, which will supply 2mtpa to Japanese and South Korean buyers on a long-term contractual basis, loaded its first cargo on 20 July. The facility was one of several new-build plants offering excess volumes into the spot market as Australia’s APLNG and GLNG plants were actively marketing volumes ahead of their anticipated September and October start-ups.

Further downside was provided in Asia as Japanese utility Kyushu Electric restarted its 890MW Sendai Number 1 reactor on 11 August, in a move anticipated to herald the phased return of a handful of the country’s nuclear reactors.

The availability of flexible cargoes in both basins effectively eroded any price differential between Middle East buyers paying premiums to British NBP and their Asian equivalents.

European buyers remained at a steady discount to Asian utilities around the $2.00/MMBtu over the period, spurring a total of seven conventional-size reloads from European terminals to premium markets from H2 July to H1 August.

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