LNG Markets Analysis

Competing market demand lifts Asian LNG prices above European levels

13 March  2015 | Simon Ellis, ICIS LNG Analyst

Competition from Brazil and the expected call on flexible volumes from a wave of new floating import terminals triggered a partial recovery in Asian spot prices in early March. Within East Asia, interest from independent buyers in China helped push prices back above European gas hub levels.

The April East Asia Index (EAX) gained $1.006/MMBtu since rolling to become the front-month on 16 February to close at to $7.556/MMBtu on 13 March. The May contract rose $0.738/MMBtu over the same period to $7.288/MMBtu.

The EAX swung from a $1.039/MMBtu discount to a $1.023/MMBtu premium to the Northwest European Index (NEX) from 16 February to 13 March as European gas hub prices weakened amid above-average temperatures.

As the front-month rolled, wide differences were observed between bids and offers as sellers took direction from relatively higher British National Balancing Point (NBP) prices. The lowest offer into East Asia for H2 April was recorded at $7.100/MMBtu on 16 February, while the highest bid was submitted at $6.250/MMBtu.

Demand was identified for April cargoes from at least three Japanese buyers as well a number of portfolio sellers with short positions into the region. In China, up to four independent buyers were heard to be in the market for April cargoes, largely using terminal capacity leased from the country’s state-owned oil companies.

Supply into the region continued to take the form of a series of tenders from Pacific Basin liquefaction plants, although many of these were marketed as multi-cargo strip deals rather than spot sales. Indonesia’s Bontang plant was understood to have offered up to four cargoes for April delivery, while Australia’s Darwin and North West Shelf (NWS) plants also tendered April cargoes.

An earlier round of tenders for March delivery produced mixed implications for pricing. PNG LNG was understood to have sold to Tokyo Electric Power Company in the mid-$6.00s/MMBtu, while participants reported NWS closed a sale for the same period in the mid-to-high $7.00s/MMBtu.

Despite a lack of indigenous demand outside of flexible contracts from European hub markets themselves, sellers’ expectations of NBP-premium pricing was sustained by strong spot buying elsewhere in the Atlantic Basin. Brazil’s Petrobras secured a total of five cargoes in February and four deliveries in the first half of March amid an ongoing drought conditions in the country. In addition, several participants with positions in northeast North American terminals placed volumes into the region to take advantage of high premiums to Henry Hub in regional physical gas markets.

By early March, the NBP began to drift below east Asian spot levels, but spot prices were sustained by supply constraints due to shoulder-month maintenance at plants including Qatargas 2, train 4 and anticipated demand from several new LNG markets opening before the summer.

Floating Storage and Regasication Units (FSRUs) are scheduled to be in place at Pakistan’s Port Qasim and Egypt’s Ain Sokhna port by the end March, while Jordan’s Aqaba floating terminal is due to be active by late May. Egypt has secured around three cargoes a month on a tender basis, while Pakistan’s Engro has yet to finalise any firm supply agreements. In addition, Thailand’s state oil and gas company PTT announced its intention to procure as much as 3 million tonnes of short-term LNG in 2015, sounding a more bullish tone for the market.

By 3 March, the highest bid in Japan for H2 April had risen to $7.200/MMBtu, while the lowest offer climbed to $7.800/MMBtu.

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