LNG Market Analysis: Asian spot LNG rally stalls on oversupply, crude slump

15 October 2014 | Simon Ellis, ICIS LNG Analyst

Asian spot prices fell in the first half of October as the region struggled to absorb abundant supply of liquefied natural gas (LNG) from the Pacific basin amid weak demand fundamentals. Falling crude oil prices also weighed on the near curve, as buyers anticipated lower contractual rates later in the winter.

The ICIS November ’14 East Asia Index (EAX) was assessed at $13.950/MMBtu on 15 October, having shed $0.775/MMBtu from a high point of $14.725/MMBtu on 29 September. This represented a $0.588/MMBtu loss since the contract rolled to become the front month on 16 September. December EAX was assessed at $14.468/MMBtu on 15 October, having fallen by $0.307/MMBtu since 16 September.

As the new contract month began in mid-September, sellers cited the high cost of marginal supply from the Atlantic basin in pushing to extend the rally that began in late July. FOB (free on board) prices remained around $13.000/MMBtu in the Atlantic basin, while opportunities from the usual sources of Nigeria and Trinidad remained limited.

Many of Japan’s larger utility buyers remained out of the market because of ample inventories and predictions of mild October weather. South Korea’s KOGAS continued its attempts to enter into swap arrangements by offering prompt volumes to the market in return for receiving volumes later in the winter. However, smaller Japanese utilities and a number of Chinese buyers had expressed interest for November deliveries.

On 26 September, the highest bid for delivery in the second half of November was recorded at $14.600/MMBtu into Japan, while the lowest offer for the same delivery period was heard at $15.100/MMBtu.

By late September, the emergence of abundant supply from within the Pacific basin acted to cap any price rises. The North West Shelf (NWS) project in Australia, the ExxonMobil-operated PNG LNG project and Abu Dhabi’s ADGAS opened tenders to sell at least four cargoes for November delivery. Indonesia’s Bontang LNG export plant also closed a tender for the delivery of up to six cargoes on a prompt basis, while the BP-operated Tangguh project on the Indonesian island of West Papua was heard to be marketing four early winter spot cargoes. These cargoes were released to the market because of a delay to the start-up of the Lampung floating terminal off the coast of southern Sumatra.

In early October, the bear run in the crude oil market began to take its toll on LNG as ICE Brent prices shed nearly $10.000/bbl in the first half of the month. Utility buyers lowered their bids in expectations of switching to petroleum products or nominating higher levels of oil-indexed volumes in their long-term contracts later in the winter. Many oil-priced contracts in Asia are indexed to Japan custom-cleared (JCC) or Brent crude with a three-or-more month lag.

By 8 October, the lowest offer for the first half of November had fallen to $14.100/MMBtu, although most participants had shifted their attention to the later winter months.

By 15 October, all elements of the forward curve fell below $15.000/MMBtu. Prices for the delivery in the first half of November were assessed at $13.763/MMBtu, H2 November at $14.138/MMBtu, H1 December at $14.225/MMBtu, H2 December at $14.701/MMBtu and H1 January at $14.925/MMBtu.

Elsewhere in the world, Brazil’s Petrobras continued to compete for spot volumes as reservoir levels in the country’s hydropower-producing regions fell to historic lows. The impact on Asia was offset by weak demand in neighbouring country, Argentina, which was obliged to postpone contracted deliveries after a mild southern hemisphere winter.

Despite declining prices in Asia, the downward pressure of falling crude prices on northwest European gas hubs left Europe’s buyers far short of being able to compete for import volumes. The premium of the ICIS Northwest Europe Index (NEX) to the EAX rose to $5.500/MMBtu by 15 October, representing a $0.431/MMBtu rise since the contract rolled on 16 September.


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