Chinese LNG buyers eye winter cargoes on price falls

Chinese LNG buyers have begun enquiring for December-January spot deliveries as LNG spot prices continue to retreat, trading houses which received such enquiries said.

But this move is likely more price-driven, not a result of buyers in China being short on gas, market participants said.

At least one Chinese national oil company (NOC) has confirmed that it is currently seeking December or January spot cargoes, since prices have softened enough to make it viable for the firm to start purchasing spot. Firms likely have a preference for first-half January deliveries since the lunar new year holiday starts on 21 January, and would ideally secure cargoes before the start of the festive season, market participants said.

The front half-month of the ANEA, the Argus assessment for spot LNG deliveries to northeast Asia, was last assessed at $26.855/mn Btu on 13 October, 62.6pc lower than the all-time high recorded on 29 August.

In comparison, the Argus LNG delivered trucked prices were last assessed on 12 October at around $20.40-22.72/mn Btu equivalent, putting the ANEA premium over trucked prices at only $4.135-6.455/mn Btu. Further softening of the ANEA could compel buyers in China to switch over to imported LNG because of the price advantage.

Some market participants have pointed out that the spread between northeast Asia delivered LNG spot prices and Chinese domestic trucked prices is still too wide to trigger any switching, but the need to secure energy security for the upcoming winter months could push buyers to look more closely at spot cargoes on offer. This is particularly the case for NOCs, who have an obligation to supply to downstream industries and could purchase cargoes for the sole purpose of ramping up inventories before the winter, not because of shortages.

But Chinese buyers have stressed that they are still well-stocked for both November and December, and are targeting an ideal transaction price of below $30/mn Btu. Buyers would adopt a wait-and-see approach for any price above $30/mn Btu.

Furthermore, second-tier buyers in China are not likely to buy spot LNG as they mostly remain well-supplied with domestic pipeline gas, market participants said.

But some early signs of a potentially colder winter should continue to keep buyers on their toes. The heating season in China's northernmost city of Mohe in Heilongjiang province began on 18 September, a week ahead of schedule. Meanwhile, it has began snowing in some regions in northeast China, earlier than expected, market participants said. Other regions have experienced an accelerated drop in temperatures, they added.