East Asia spot LNG prices fell from their recent highs in June as production issues abated and LNG lost ground in the regional power generation mix.
July ‘15 East Asia Index (EAX) was assessed for the final time at $7.381/MMBtu, having fallen by $0.375/MMBtu since it rolled to become the front-month on 18 May. The contract peaked at $8.100/MMBtu on 26 May, the highest price for the Asian front-month contract since January.
As the period opened in mid-June, the impact of outages at Yemen LNG and the North West Shelf LNG complex appeared to be feeding into prices for prompt delivery. The Australian plant loaded its first cargo on 16 May since an electrical fault halted production on 5 May, but plant operator Woodside warned of reduced production until the end of the month.
In mid-May, at least one cargo from Brunei LNG’s cargo for June delivery was sold in the high $7.00s/MMBtu. For July, the highest bid for the second half of the month rose to $7.300/MMBtu on 18 May while the lowest offer for H2 July 2015 was recorded at $7.900/MMBtu.
The bullish sentiment came despite reports of muted demand around key regional markets. In Japan, a combination of stronger hydro generation and weak industrial demand has suppressed LNG demand for most power utilities. LNG consumption by Japan’s largest electric utilities in April fell 5.9% year on year to 3.9m tonnes, according to FEPC data. Demand was also said to be muted in Taiwan, where a nuclear unit restarted in May, and South Korea, where a nuclear unit was due to be restarted in July.
Instead demand was heard to be strongest among Chinese independents, portfolio traders which had taken short positions earlier in the year and one Japanese power utility, which was said to have been obliged to delay a restart of its own nuclear facility from July to August.
Demand from Chinese buyers was particularly influential in the improved sentiment, with one private company heard to have procured a prompt cargo for June delivery in excess of $8.000/MMBtu. By 26 May, the highest bid from China for H1 July delivery rose as high as $8.100/MMBtu, while the lowest offer was recorded at $8.500/MMBtu.
By the turn of the month, the market began to cool as the supply situation improved. Production at North West Shelf returned to normal while Darwin LNG and Sakhalin 2 offered new supply tenders. Indonesia’s Bontang was understood to be preparing to sell 15 cargoes over the rest of 2015 while Australia’s new APLNG project marketed a string deal. By mid-June, Tangguh LNG operator BP was understood to have cancelled a further tender due to weak bids for the volumes.
On the demand side, further downside was added by a programme of summer repairs at Kansai Electric’s 2.9GW Himeji LNG-fired plant, which would further cut the role of LNG in Japan’s power mix.
By 12 June, the highest bid for July was heard at H2 July was $7.200/MMBtu while the lowest offer for the half-month period was $7.500/MMBtu.
For European utilities, the focus remained on reloads as European summer hub prices remained at a wide discount to Asian equivalents. In H2 May and H1 June cargoes were lifted from Gate, Zeebrugge and Sagunto as well as Bilbao, where the first full reload cargo was loaded on 30 May.
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