LNG Markets Analysis

Asian LNG price rally stalls despite plant outages

25 February  2016 | Ludovic Aldersley, ICIS LNG Analyst


A supply outage at Russia’s LNG export plant in Sakhalin at the end of January temporarily arrested falls in East Asia and created a wedge between the March and April market. The ICIS March EAX was assessed for the final time at $5.05/MMBtu on 15 February, representing a small gain from its low-point of $4.98/MMBtu on 29 January, but also an overall decline since becoming the front month on 18 January.

East Asia LNG vs NW Europe LNG

Both March and April contracts quickly lost value early on during the second half of January as East Asian buyers struggled to deal with high inventories. A severe cold snap across southern China, Japan, Taiwan, Korea, brought some relief as heating demand began to ease storage space. But it was not until production issues surfaced at Sakhalin that market sentiment momentarily swung in favour of sellers.

A force majeure on deliveries from one of Gazprom’s two production trains at Sakhalin prompted bids from a number of Asian buyers. Limited offers from sellers particularly for the first half of March helped drive the EAXto $5.28/MMBtu in early February.

Meanwhile expectations that Sakhalin production would return to nameplate capacity before the end of March as well as more supply from Australia, the US, and Angola helped keep April assessments below $5.00/MMBtu.

An early March East Asia delivery may have transacted at or near $6.00/MMBtu but was widely seen as an outlier by multiple market participants. Additionally, with suppliers capable of offering increasingly competitive cargoes from mid-March, front month prices began to gradually subside as February wore on.

Although Japanese utility Chugoku Electric took a coal-fired power plant offline for 15 days on 30 January and South Korea’s KHNP started maintenance on a new nuclear reactor on 12 February, downstream gas demand has remained fundamentally low in the region.

Demand from elsewhere such as India, Pakistan, Jordan, and Egypt has absorbed some length but recent payment issues in Egypt forced some suppliers to rethink alternative destinations. Supply earmarked for Egypt that may consequently need to be remarketed for South America, Europe or elsewhere added to bearish sentiment.

Gas prices in the Netherlands and Belgium for March delivery fluctuated above $4.00/MMBtu until 9 February after which they dipped towards $3.90/MMBtu. With March LNG deliveries to the region, including the UK, assessed at $3.78/MMBtu on 15 February, most traders still sought opportunities to direct LNG to higher priced markets. Re-exports from Europe continued apace with four from France scheduled in February and one each in Belgium and the Netherlands.

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