LNG Markets Analysis

New markets make impression on Asian spot prices

15 July 2015 | Simon Ellis, ICIS LNG Analyst

East Asian spot LNG prices rebounded in mid-July, as the regions’ buyers responded to a spike in demand from South America, the Middle East and South Asia. In particular, participants saw the higher bids available from the new markets of Egypt and Pakistan as driving the reverse in the downtrend experienced in Asian prices since early June.

The ICIS August EAX was assessed for the final time at $7.925/MMBtu on 15 July, having risen $0.856/MMBtu since reaching its lowest assessed value of $7.069/MMBtu on 1 July. Overall August rose $0.419/MMBtu since becoming the front-month contract on 16 June.

As the new front-month opened, demand from East Asia’s traditional biggest buyers was muted. Buying interest from Japan’s electricity utilities was curtailed by subdued temperatures, while South Korea’s KOGAS remained oversupplied. Instead Chinese buyers and South Korean independents provided the focus of demand alongside portfolio sellers with contractual commitments into the region.

On the supply side, Pacific Basin production appeared healthy as tender cargoes were offered from Indonesia’s Bontang and Tangguh plants and Russia’s Sakhalin 2 facility. However, the vast majority of cargoes from all three competitions were heard to have been awarded to portfolio suppliers looking to optimise positions in the region. Sales from the Tangguh and Bontang tenders were heard to have been awarded in the low $7.00s/MMBtu and a discount to 13% of Brent crude respectively.

China’s buyers targeted prompt cargoes at rates reflecting the relative lack of competition in the region. PetroChina was understood to have secured a cargo from Australia in the low $7.00s/MMBtu for late July delivery. A Chinese independent buyer was understood to have secured a late July cargo at $7.50-7.60/MMBtu with the premium reflecting the latter’s lack of terminal capacity.

August appeared to offer little or no premium on the prompt as two South Korean independents were understood to have secured an H2 August cargo in the mid $7.00s/MMBtu in late June.

By 25 August, the highest bid in East Asia for August delivery was recorded at $7.00/MMBtu, substantially below the lowest offer of $7.70/MMBtu.

Asia’s larger buyers were understood to have shifted focus to procuring LNG for the coming winter. String deals for delivery in the first quarter of 2016 were heard between the range of 13.2-13.6% of Brent crude oil.

In July, the pressure on Asian buyers began to build as buyers elsewhere in the world stepped up their procurement plans.

New LNG market participant Pakistan State Oil (PSO) provided competition on the prompt, securing a July tender cargo at more than $8.00/MMBtu, according to market sources. Jordan’s NEPCO also closed a tender cargo for its recently opened Aqaba terminal for August delivery.

Egypt’s EGAS, which started procurement at its Ain Sukhna FSRU in 2015, also affected sentiment on the curve as details emerged in July of a tender calling for 45 further cargoes to be delivered from October 2015 to 2016.

South America’s ENARSA also added to pressure on relatively tight Atlantic Basin volumes, issuing a tender in July for up to eight cargoes for August and September delivery.

By 14 July, Asian buyers appeared to adjust bids to compete with the highest bid in Japan rising to $7.60/MMBtu for H2 August delivery. The lowest offer for the same period on 15 July was recorded at $8.20/MMBtu.

Prices were assessed in a shallow contango along the near curve. On 15 July, H1 August was recorded at $7.862/MMBtu, H2 August at $7.986/MMBtu, H1 September at $8.025/MMBtu, H2 September at $8.075/MMBtu and H1 October at $8.20/MMBtu.

In Europe, the rebound in global spot prices was expected to prompt renewed activity on the reload market. The premium of the August EAX to the ICIS Northwest European Index (NEX) rose to $1.472/MMBtu from a low of $0.663/MMBtu on 1 July.

At least five reloads have been planned from European terminals in H2 July and H1 August, including two from the Netherlands’ Gate terminal, according to ICIS information.

About ICIS

ICIS is the world's largest petrochemical market information provider and has fast-growing energy and fertilizer divisions. Our aim is to give companies in global commodities markets a competitive advantage by delivering trusted pricing data, high-value news, analysis and independent consulting, enabling our customers to make better-informed trading and planning decisions. We have more than 30 years' experience in providing pricing information, news, analysis and consulting to buyers, sellers and analysts.

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