Some summer demand for August boosted the price of liquefied natural gas (LNG) in Asia at the end of June from three-year lows earlier in the month, providing an incentive to traders to re-export cargoes to Asia from Northwest Europe, where prices continue to be depressed with ample LNG supply and high storage levels.
Chinese and Japanese buyers active on the spot market boosted Asian prices last week.
Yet, overall early summer demand is Asia is still muted as temperatures are moderate and cooler than last year’s heatwaves in Japan and China that sent LNG prices surging.
Early forecasts suggest that traders shouldn’t bet on another heatwave this summer to prop up Asian LNG prices. If temperatures across Asia are more moderate and less volatile than last summer, as some weather forecasts suggest, demand could continue to be muted, deepening the glut in LNG as global supply continues to grow.
Sluggish early summer demand finally saw an uptick in the week to June 28, pushing up Asian LNG prices for August delivery by 20 cents from the prior week to US$4.80 per million British thermal units (MMBtu), according to Reuters data. Most of the demand came from Japan and China, the world’s no.1 and no.2 LNG importers, respectively, while India showed some short-term demand for power plants, sources told Reuters.
The higher prices in Asia resulted in several cargoes expected to be re-exported from Europe into the Asian market because prices in Europe have further decreased, to US$3.20 per MMBtu at the Dutch gas hub, according to Reuters data.
Prices in Europe have been depressed due to surging LNG imports earlier this year and a milder 2018/2019 winter than the previous winter. According to the European Commission’s (EC) Quarterly Report Energy on European Gas Markets for Q1 2019, LNG imports into the European Union (EU) soared by 126 percent on the year in the first quarter of 2019, as the price premium of the Asian LNG markets to Europe practically disappeared, enabling the acceleration of LNG flows into Europe in Q1 2019.
On the other hand, gas storage in the EU was on average 22 percent higher at the end of the heating season in March compared to the previous year, the report showed. Withdrawals from the storages were at 30 percent of total capacity in Q1 2019, much lower than the 46 percent withdrawal of total capacity in Q1 last year, due to less heating-related demand, abundant LNG imports, and decreasing spot gas prices. In addition, refilling of storages began earlier this March than in March last year, implying lower needs to replenish gas storage supplies in Q2 and Q3 than last year, the EC said.
So in recent days, utilities and traders have also considered LNG reloads in Europe bound for Asia, according to Reuters, in view of the price differential that would help sellers to make more profit from re-exporting cargoes from Northwest Europe to Asia.
LNG prices in Asia have recovered in recent weeks from a three-year low in early June, when spot prices for July delivery were estimated at US$4.25 per MMBtu amid ample supply and weak trading activity as market participants turned their attention to August cargo deliveries in expectation of higher demand in the heat of the summer. However, weather forecasters told Bloomberg in May that they expect this summer’s temperatures across Asia to be lower and less volatile than last year’s. If these forecasts turn out right—and they did at least in June—demand may not be too high to absorb all the additional supply that is coming on the global market, according to analysts.
Research from BloombergNEF (BNEF) showed in May that the global LNG market is up for a wild ride in the supply-demand balance over the next five years.
This year, exports will grow at a faster pace than imports, “putting downward pressure on prices unless unusual temperatures in import markets lift demand,” BNEF said.
Conversely, in 2022-2023, LNG imports will outpace exports, according to the research.
According to Ashish Sethia, head of commodities at BNEF:
“This year’s expected excess supply of 16MMtpa will be hard for the market to absorb, unless we get a dose of ‘wild demand’ for either a hotter summer or colder winter in North Asia or Europe. If not, pressure will be on LNG prices.”