LNG Markets Analysis

East Asian spot LNG premium returns ahead of winter

17 November  2015 | Simon Ellis, ICIS LNG Analyst

East Asian buyers raised bids steadily over the past four weeks to secure tender cargoes in face of strong demand from both competing markets around Suez and portfolio sellers.

The East Asia Index for December delivery closed at $7.80/MMBtu on 13 November, having risen $0.85/MMBtu since the contract opened as front month on 16 October

LNG Chart

East Asian spot prices pulled away from those in the Middle East while other markets, including India, kept pace in absolute terms. The ICIS Middle East and North Africa Index, an arithmetic average of prices into Egypt, Dubai and Kuwait, remained stable over the period, closing at $6.910/MMBtu. The India DES December contract gained $0.850/MMBtu over the same period before closing at $7.500/MMBtu on 13 November.

Despite abundant LNG flows to the region, European gas hub contracts lost touch with rising Asian prices amid temperate weather conditions in the continent. The EAX December contract premium to the NEX climbed from just under a dollar to $2.622/MMBtu.

As the new front month opened in mid-October, buyers’ expectations in East Asia had remained firmly below $7.00/MMBtu. On 20 October, the highest bid for H2 December was recorded at $6.40/MMBtu, while the lowest offer for the same window was heard at $7.10/MMBtu.

East Asian markets offered conflicting demand signals over the period. In Japan, Kyushu Electric restarted the second reactor at its 1.78GW Sendai nuclear power plant. However, the western Japanese utility was among those Japanese buyers understood to have secured spot volumes for December delivery.

In Taiwan, which had been a focus for spot demand earlier in the year, utility Taipower was due to shut a nuclear reactor for maintenance from 9 November.

In China and South Korea, independent buyers were understood to have been active in the market, while demand among incumbents appeared weaker. State oil and gas company CNOOC sought to release another QCLNG cargo into the spot market as it struggled to absorb spot LNG.

Competition from other global markets and series of sell tenders exercised a key influence on price formation in late October and early November. In late October, a buyer in India was understood to have paid more than $7.00/MMBtu for a December spot cargo, driving up expectations in Asia. Elsewhere, buyers in Pakistan, Turkey, Kuwait and the west coast of Mexico all sought cargoes for November or December delivery.

At the end of October, a December tender cargo was awarded from an Indonesian LNG plant at around $7.30/MMBtu. Further tenders closed in early November from two Asia-Pacific plants, which resulted in prices from the mid $7.00s/MMBtu to the $7.80s/MMBtu, as end-users competed with portfolio sellers for excess plant volumes.

The expected ramp-up of the Australian plants continued to keep a lid on the curve. On 13 November, the prompt was seen to be trading at a premium to the curve. Both halves of December were assessed at $7.80/MMBtu, while H1 February was assessed at $7.70/MMBtu.

The steep fall in European prices against Asian equivalents improved the economics for reload transactions, with five taking place in H2 October and H1 November. However, the change in marginal prices was yet to affect flows into key European gas hub markets. A total of 32 cargoes were delivered into the UK, Belgium, the Netherlands and France in October 2015 marking the highest number since August 2012, according to ICIS LNG Edge.  

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