Asian spot LNG prices fall back towards contractual levels

14 March 2014 15:43 Source:ICIS

Asian spot prices for April have fallen sharply over the past two weeks, as supply constraints eased and buyers brought forward long-term purchases to the start of the contract year.

The April East Asia Index (EAX) assessment closed at $17.337/MMBtu on 14 March, representing a $1.932/MMBtu fall since 17 February, when it became the front-month contract. The May contract fell by $0.837/MMBtu over the same period to $16.663/MMBtu.

In Europe, concerns about pipeline gas supply via Ukraine helped narrow the gap between Asian and European prices, as the latter rose in response to escalating tensions in the Crimea. The spread between the EAX and Northwest Europe Index (NEX) April assessment fell by $2.355/MMBtu from 17 February to 14 March to close at $6.804/MMBtu.

Through the second half of February, price expectations for April remained robust.

On 17 February, the lowest offer for H1 April remained at $20.00/MMBtu, with the highest bid recorded at $19.25/MMBtu as participants reported limited supply availability. Japanese utility spot demand was assessed as five cargoes for April delivery with the possibility of up to two further cargoes being deferred from March if prompt supplies could not be secured.

Sellers were willing to offer a sharp discount for deliveries in the second half of April, with the lowest offer recorded at $19.00/MMBtu on 24 February. Participants cited arrangements by Japan’s utility buyers to bring forward contractual volumes to the start of the Japanese financial year in April as a factor behind the weakening of the furthest forward months on the curve. Japan’s utilities have requested permits to bring nearly 17GW of nuclear plants back online, with the first restarts expected to reduce LNG demand in the second half of the Japanese financial year.

By March, a stronger production outlook and weakening international competition put prices under further downward pressure.

On 7 March, Australia’s Northwest Shelf project issued a multi-cargo tender for March to May delivery, in an apparent sign that reliability issues reported by the plant in Q4 2013 had been resolved. Qatar’s Qatargas and RasGas were also understood to be offering April and May cargoes as winter string deals came to an end. Buyers also anticipated more reliable production from Angola LNG after a third tender cargo was offered by the plant on 20 February.

In South America, competition from Brazil’s Petrobras, which reached a record 10 cargoes in February, was understood to be easing significantly on the back of higher rainfall from the second half of February.

In Asia, the weakening sentiment left buyers reluctant to pay higher prices for spot cargoes than for levels in their oil-indexed contracts. Japanese long-term contract prices were expected to be priced in the mid-to-high $16.00s/MMBtu for April and May delivery, according to traders.

By 7 March, the highest bid from a Japanese buyer was made at $16.25/MMBtu for both H2 April and H1 May delivery.

On 14 March, the forward curve remained in a steady backwardation out to the early summer months. H2 April was assessed at $17.513/MMBtu, H2 April at $17.163/MMBtu, H1 May at $16.813/MMBtu, H2 May at $16.513/MMBtu and H1 June at $16.300/MMBtu.

Despite weakening Asian prices and the price uptick from the situation in Ukraine, European participants remained focused on re-exporting contractual volumes than securing spot LNG. After completing just three commercial reloads in the first two months of the year, a total of nine commercial reloads were scheduled to be lifted from Spain in March, according to energy company Enagas’s data published on 14 March. Simon Ellis

By Simon Ellis