East Asian spot LNG prices weaken on abundant Pacific supply

15 April 2014 16:56 Source:ICIS

East Asian spot LNG prices found support around $15.00/MMBtu in the first half of April after undergoing a sharp fall in the second half of March. Abundant spot availability contributed to weakening sentiment on the prompt while the prospect of nuclear restarts weighed on the curve.

The ICIS May East Asia Index (EAX) was assessed for the last time at $15.212/MMBtu on Tuesday, having fallen $1.401/MMBtu since it rolled to become the front month on 17 March. The June contract fell by $1.300/MMBtu to $14.950/MMBtu over the same period.

On 17 March, buyers posted bid levels of $16.00/MMBtu for both halves of May, while offers were understood to be in the high $16.00/MMBtu range. Taiwan’s CPC and two Japanese utilities were heard to be looking for additional May volumes.

Sentiment was weakened by the emergence of a wave of available supply from within the Pacific Basin, with volumes available from Qatar, Malaysia and Australia for delivery for May and June. By 19 March, Japanese buyers were understood to have secured two Pacific Basin cargoes for May delivery in the low $16.00/MMBtu range. On 21 March, Australia’s Northwest Shelf project awarded a six-cargo tender with Japanese buyers among the winning parties.

By 25 March, the lowest offers for May fell to $16.100/MMBtu, while the lowest bids were heard in the mid-to-high $15.00s/MMBtu. Despite the decline, Japanese buyers were still understood to have demand for a further two May cargoes.

Further ahead on the curve, buying sentiment in Japan was weakened by the expectation of long-delayed nuclear restarts. On 14 March, Japan’s Nuclear Regulatory Agency stated the first units at Kyushu Electric’s Sendai plant could be the first to pass safety checks, potentially allowing for a full restart in the second quarter.

The first Japanese utility bids for June were recorded by 27 March at $15.100/MMBtu. June was assessed at $15.225/MMBtu on 1 April, having fallen $1.025/MMBtu since 17 March.

In the first half of April, prices for both May and June found support around $15.000/MMBtu on the back of higher summer temperature expectations in Japan, production setbacks and opportunistic demand from buyers hedging themselves against any summer price rises.

On 1 April, Angola LNG was scheduled for a new 15-day turnaround following its latest loading, adding to a shoulder month maintenance schedule already including Snohvit LNG in Norway and Qatargas 1.

On 11 April, The Japan Meteorological Agency forecast that the country’s Kyushu, Chugoku, Shikoku and Kansai regions have a 40% probability of above-normal temperatures during the June-August summer months.

Falling Asian prices limited the arbitrage opportunity for Atlantic Basin cargoes. The premium of the May EAX to the ICIS Northwest Europe Index (NEX) fell to $5.613/MMBtu by 15 April.

The slackening of Asian demand over the period was visible in Europe through the increase of flexible deliveries to the continent. A total of five Qatari Q-Flex or Q-Max vessels arrived in the UK in the first half of April, after two were delivered in the second half of March. Buyers at the Netherlands’ Gate terminal took delivery of two Norwegian cargoes over the same period.

But reload activity continued apace from European terminals. Seven commercial-scale reloads were lifted from Spain over the second half of March and first half of April. A further three cargoes were reloaded from Gate and Belgium’s Zeebrugge terminals in late March and early April. Simon Ellis

By Simon Ellis