The Asian market for liquefied natural gas (LNG) remained subdued this week, weighed down by oversupply concerns and as the northern hemisphere exits its high demand summer season.
Spot prices for Asian LNG LNG-AS were at $5.40 per million British thermal units (mmBtu), down 5 cents from a week ago. That’s more than 70 percent below the $20.50 per mmBtu peak from February 2014.
“Summer demand had been strong at this level (of mid$5/mmBtu). It’s approaching shoulder months so prices are correcting,” a Singapore-based LNG trader said.
LNG deamnd weakens seasonlly during the shoulder season between the northern hemisphere’s summer and winter. However, LNG markets are also generally oversupplied, largely because of soaring output from Australia and the United States.
This excess in available LNG has led buyers to demand more flexible terms for long-term supply contracts that dominate Asia.
Most long-term LNG supply contracts have fixed monthly volumes at prices pegged to crude oil, and which at $8.7 per mmBtu are much higher than spot prices.
Under most of these contracts, buyers have to take the agreed volumes or pay for them even if they are cancelled. Re-selling imported LNG is usually not allowed due to so-called destination clauses in the contracts.
With plentiful alternatives and lower spot prices, many large importers are demanding more flexible terms or plan to reduce their long-term contracts in order to buy more LNG at short notice in the spot market.
Japan’s Tokyo Gas, the biggest gas supplier in the world’s largest importer of LNG, said this week it was in talks to revise terms to get more flexibility and cut prices.
Bangladesh, seen as a strong source of future LNG demand, is also opting to reduce long-term supply commitments in favour of the spot market.
Source: ReutersPrevious Next