Asian spot LNG prices at record high on 'perfect storm'

Strong consumer demand, lower-than-expected temperatures across northeast Asia and a severe shortage of prompt LNG supplies and spot tanker availability have combined to send northeast Asian spot LNG prices to an all-time high — just nine months after hitting record lows.

The front half-month ANEA price surged to $21.785/mn Btu for first-half February on 6 January, surpassing the previous record of $20.40/mn Btu on 4 February 2014. The price has risen by $5.35/mn Btu, or around 33pc, since the start of the year; by 170pc from the assessment of $8.065/mn Btu on 4 December; and is up 13-fold from its unprecedented low of $1.675/mn Btu on 30 April.

The perfect storm of market factors has maintained the seemingly inexorable momentum in northeast Asian spot LNG prices, surpassing most market participants' winter price expectations. Consumers are scrambling to secure prompt deliveries to replenish LNG inventories amid plummeting temperatures.

Spot availability for prompt deliveries has been in short supply as a consequence of a string of events in recent months. These include robust demand for winter deliveries up to February, reduced production at US liquefaction facilities because of cargo cancellations by offtakers, supply disruptions at plants in the US, Malaysia, Qatar, Australia and Indonesia, and significant delays for LNG carriers transiting the Panama Canal on route to northeast Asia from LNG facilities in the US.

Prices typically rise during the winter season. But market participants did not expect such a rapid escalation, with prices rising by a never-before-seen magnitude. Many had anticipated that winter prices would top out at $8-9/mn Btu. Instead, the front-half month ANEA price has posted massive day-on day gains since December, almost doubling from $7.94/mn Btu on 1 December to $15.56/mn Btu on 31 December.

Vessel squeeze

A lack of available vessels for spot charters in both the Atlantic and Pacific basins has squeezed spot charter rates, compounding the impact of tight LNG supplies and high cargo prices.

Argus spot round-voyage rates have reached their highest level this winter, with the ARV3 — the Argus round-voyage assessment for a shipment from the US Gulf Coast to northeast Asia — assessed at $179,518/d on 6 January, up from $113,392/d on 4 December and $67,071/d on 6 October.

Buyers deem spot prices at $21-22/mn Btu "insane," especially when compared to oil-linked term contract prices. The Argus oil-linked Japan des price for February was at $6.91/mn Btu on 5 January. Many long-term LNG contracts are indexed at 14-15pc of crude, whereas spot prices at $21-22/mn Btu are equivalent to around 40pc of Brent, based on the front-month Ice Brent settlement at $54.30/bl on 6 January.

But further gains are expected in the near term. Some traders suggest that first-half February could easily test the $30/mn Btu level, especially as Japan's power prices have soared on stronger-than-expected electricity demand for heating purposes because of colder-than-expected weather. Wholesale electricity prices in Japan hit an all-time high of ¥99.9/kWh on 7 January, more than seven times the average price of ¥13.93/kWh in December.

Some Japanese utilities are facing a shortage of LNG and are seeking prompt deliveries urgently, even as they have been forced to lower operating rates at some of their gas-fired power plants to avoid any unscheduled shutdowns resulting from inadequate LNG supplies.

Japan's Jera bought a cargo on 6 January for delivery either in second-half January or first-half February at $24/mn Btu, and could still be in the market to buy February cargoes, market participants said. Utility Kyushu Electric is also enquiring for a second-half January cargo on a bilateral basis.

South Korean buyers Kogas and Prism Energy, as well as several Chinese consumers, are seeking first-half February cargoes.

Deep freeze

Continued spells of very low temperatures beyond this week could extend the current rally, especially if demand remains unfulfilled for first-half February and is rolled into later delivery windows, market participants said. Temperatures in Beijing hit a low of -30°C on 30 December and are at -8°C today. Temperatures are at -14°C and 8°C in Seoul and Tokyo, respectively, today.

But the extremely wide intra-month February spread — at $5.785/mn Btu on 6 January — reflects expectations that increasing cargo availability for deliveries from the second-half of February will exert downward pressure on prices.

At least 15 cargoes may be available for delivery in second-half February as traders optimise their portfolios to divert cargoes intended for delivery to Europe or the Middle East to northeast Asia instead.

The increase in prompt prices above the $20/mn Btu threshold has incentivised some producers to also make a few second-half January cargoes available this week. The offers include two cargoes from Qatar, as well as one 21-28 January delivery that ExxonMobil is offering from the 15.6mn t/yr Gorgon facility in Australia through a tender.

Market participants said there were no offers for second-January at the end of last week. Argus is no longer assessing second-half January prices and last assessed prices for the delivery window on 31 December at $15.68/mn Btu.

By Camille Klass