21-10-2016

Asian LNG demand lifts spot prices as winter approaches

ICIS

A number of buyers across East Asia and India have tapped the LNG spot market causing marginal supply to appear increasingly scarce as the northern hemisphere winter approaches.

The ICIS November East Asia Index (EAX) was assessed for the final time at $6.45/MMBtu on 14 October, having risen $1.06/MMBtu since becoming the front month on 16 September. The second front-month contract, the December EAX, closed at $6.80/MMbtu, representing a $1.25/MMBtu rise.

globallngvsnweuropenov16

Renewed appetite from South Korean state-owned buyer KOGAS has been key in the upward price direction. Four nuclear units at Wolsong in South Korea went offline following earthquakes that hit the country in mid-September. Korea was deprived of more than a quarter of its 22GW nuclear power capacity on the back of a long and hot summer of heightened electricity demand for air conditioning.

As Korean gas inventories dwindled, KOGAS went from being relatively long in LNG to short, and after having nominated to take as many incremental deliveries through its long-term contracts as commercially viable, the company issued its third short-term buy tender of the past five weeks on 12 October. KOGAS had awarded three cargoes through the first tender in mid-September and issued a subsequent tender for five shipments in late September. Its latest tender, which is expected to be awarded by 27 October, seeks four deliveries from November 2016 to February 2017.

While downstream dynamics may have forced KOGAS’ hand in coming to market, other buyers may have seen September as an opportunity to lock in a November or December price in a rising market.

Buyers in India were active in mid-September sealing November deliveries at a premium to the EAX. Prices in the mid-$5.00s/MMBtu at the time had appeared attractive compared to the alternative competing fuels in India. Other buyers intent on absorbing spot supply were forced to raise bids above their Indian counterparts wiping out some, but not all, prospective Indian demand at the $5.85/MMBtu mark by the end of September. But with front-month Brent crude oil above $50.00/bbl since 3 October for the first time since the summer, certain Indian buyers re-issued tenders and were capable of paying between $6.00-6.40/MMBtu on a November delivered ex-ship (DES) basis.

Volumes to India have come from as far west as the US and as far east as Australia, although upcoming deliveries in November are expected from nearer sources in west Africa and Europe. Although production in Nigeria and Angola has risen of late, and European front-month hub prices have also risen, re-exports from Europe to India are still more than possible, according to market sources.

While the UK will not have received any LNG in the four weeks to 17 October due to Qatari diversions, the country is relatively well supplied even if the Rough storage facility will not be back to full operation capacity during the winter. September in the UK was the joint second-warmest, on records dating back to 1910. The UK’s Isle of Grain terminal is expected to provide a reload, which Centrica will supply to India’s GAIL in November, unless the supplier can find an alternative means of optimising its commitment in the spot market.

A tender award from Russian producer, Sakhalin Energy, on 14 October for four December-loading cargoes at $6.80-6.90/MMBtu DES, suggests there could be market tightness, supporting the case for further re-exports from Europe, even if Sakhalin’s cargoes back-fill the long-dated commitments of traders rather than end-buyers. Japanese buyers, such as Kansai Electric and Kyushu Electric, which have probed the early winter market to cover offline nuclear power capacity, have not been prepared to bid above $6.50/MMBtu.

eax-oct-lng-edge-image_300px

Image showcases diversion of Nigeria-sourced cargo afer approaching Ain Sukhna, EgyptTiming is also key with new production coming online in Australia and some marginal supply for end-October and November potentially being released back to the market as Egypt’s state-owned buyer, EGAS, struggles with payment terms. ICIS analytics platform, LNG Edge, shows a Nigerian-sourced cargo aboard the Maran Gas Mystras is one of the two-three cargoes expected to be diverted from Egypt this month.

Source: ICIS ( Ludovic Aldersley, ICIS LNG Analyst)

Previous Next
 

In Conversation with Mr Neeraj Bansal, Deputy Chairman, JNPT

View More Videos


Gallery

India Ship Management Summit 2016

View All Albums