LNG Markets Analysis

Plant start-ups weigh on early winter LNG curve

15 September  2015 | Simon Ellis, ICIS LNG Analyst

 Front-month Asian LNG prices lost ground since mid-August as ample supply options and milder temperatures in the region weighed on sentiment. The November contract was also pushed into backwardation as traders considered the imminent start-up of two Australian plants.

The ICIS October EAX was assessed for the final time at $7.40/MMBtu on 15 September, having fallen by $0.706/MMBtu since rolling as front month on 17 August. The November contract slipped to a slight discount to the prompt, closing at $7.25/MMBtu, a fall of $0.925/MMBtu.

In mid-August, sellers’ hopes of keeping prices above $8.00/MMBtu faded as the above-average temperatures experienced around East Asia receded in the second half of the month.

Taiwanese import monopoly CPC, which had been active over the summer, scaled back spot purchases for Q4 2015 as a series of typhoons dampened the country’s power demand. In China, spot LNG demand was also impacted by the country’s economic slowdown and competition from oil products. Two Chinese state oil companies attempted to divert surplus shoulder-month contractual cargoes to alternative buyers.

On the supply side, Sakhalin 2, Indonesia’s Tangguh LNG and North West Shelf LNG all marketed October cargoes, adding to the length of the Pacific Basin.

Outside East Asia, heavy rainfall in South America limited competition for cargoes from Argentina and Brazil, which both rely on hydroelectric generation.

Amid tepid demand and abundant supply, prices softened in late August. The Sakhalin and Tangguh tenders were heard to have been awarded below $8.00/MMBtu. By 1 September, the lowest H1 October offer had fallen to $7.90/MMBtu, while the highest bid stood at $7.50/MMBtu.

In early September, further falls in prices appeared to have attracted some buyers back into the market. Despite ongoing weak demand from the South Korean power sector, import monopoly KOGAS was understood to have secured cargoes on a prompt basis and to have a firm requirement for a limited number of winter cargoes.

But it was the increase in anticipated supply, rather than demand, which continued to dominate expectations for winter pricing. The scheduled start-up of Australia’s Gladstone LNG (GLNG) and APLNG plants in September and October respectively was expected to provide enough short-term liquidity to meet any surges in demand.

On 15 September, H1 and H2 October EAX were both assessed at $7.40/MMBtu, while the two halves of November were seen lower at $7.25/MMBtu and H1 December at $7.30/MMBtu.

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