Asian spot LNG prices return to fresh highs

Asian spot LNG prices have refreshed highs from two months ago, pulled up by a sharp surge in European gas hub prices.

But the slow pace at which Asian prices have tracked the rise in European gas hub prices in recent weeks because of weaker demand in the region has led to questions on whether further gains in Asian prices may be capped.

Some market participants expect that Asian prices may hit a ceiling at around a mid- to high $40s/mn Btu, unless a prolonged period of unseasonably cold weather lowers inventories to the point that Asian buyers will have to enter the spot market and vie with Europe for spot cargoes.

The ANEA price, the Argus assessment for spot LNG deliveries to northeast Asia, for the front half-month was assessed at $44.980/mn Btu for second-half January deliveries today, up by 97.5¢/mn Btu or 2.2pc from 21 December. This was $8.995/mn Btu, or 25pc, higher than $35.985/mn Btu for first-half January deliveries on 1 December. It surpassed by $2.885/mn Btu the previous high of $42.095/mn Btu for first-half November deliveries on 6 October.

This followed a sharp rally to unprecedented highs in the Dutch TTF price on 21 December, driven by uncertainty surrounding Russian supplies to Europe on expectations of colder weather in most northwest European countries in the coming days.

The Dutch TTF month-ahead price set a new record at $59.570/mn Btu for January on 21 December, up by $11.024/mn Btu, or 22.7pc, from $48.546/mn Btu the previous day. It was also nearly tenfold the $6.016/mn Btu assessed exactly a year earlier on 21 December 2020.

While gains in the TTF have pulled up Asian spot LNG prices, Asian prices have risen by a much smaller margin, widening the inter-basin spread.

The ANEA price for both halves of February today was at a $14.700-15.720/mn Btu discount to the TTF January price on 21 December, widening from $4.601-5.521/mn Btu a day earlier. The ANEA price flipped to a slight discount to the preceding day's TTF price for the corresponding month on 14 December, with the spread having widened since. The TTF was historically referenced as a price floor for northeast Asian spot LNG, with northeast Asia regarded as a "premium" market for the fuel.

Muted consumer demand in Asia has kept a lid on bids even as offers have risen with the TTF, expanding the bid-offer spread for LNG deliveries to northeast Asia and keeping market activity in the region limited. The bid-offer spread for February deliveries to northeast Asia widened to around $9-10/mn Btu today from $6-7/mn Btu on 21 December and 40-50¢/mn Btu on 1 December.

Well stocked

Earlier than usual winter purchases by Asian consumers this year have kept most of them well stocked, with some Chinese buyers even looking to sell cargoes to ease near tanktop situations at terminals amid generally mild weather and weak downstream demand. Other buyers that may have requirements are awaiting a softening of prices, as current levels have made it unviable for them to operate in the downstream sector.

Market participants expect the ANEA's discount to the TTF to widen if the TTF continues its upwards rally. But a sustained cold snap in Asia could draw down inventories and push some buyers, especially from Japan, into the spot market, putting upwards pressure on Asian prices.

China, Japan and South Korea are expected to experience low temperatures during the Christmas period. But weak commercial and industrial demand for gas during the holiday season may limit any upside resulting from a short-lived cold snap during that period.

The Japan Meteorological Agency on 16 December forecast a 50-60pc probability of below normal temperatures throughout most of Japan during 25-31 December, except the Amami and Okinawa regions with a 40pc chance. But the likelihood is lower at 30-40pc for the whole country for 1-14 January next year.

The ANEA price surged to a then-high on 6 October, also on the back of a sharp rally in the TTF price. But the ANEA price was at a premium over the TTF then, with buyers in both regions competing for LNG supplies ahead of the peak winter demand season.

By Joey Chua