LNG spot price for delivery to North Asia has more than doubled since hitting an all-time low earlier this year,.
However, the gain is more impressive on paper than in reality, a Reuter’s analyst claimed.
The LNG-AS spot price ended last week at $4.10 per MMBtu, its highest since mid-January and 122% above the record low of $1.85 seen at the beginning and end of May.
Spot LNG prices in Asia tend to be cyclical, the analyst explained, with the high point for the year coming in the peak of northern winter demand, and generally a smaller peak occurring during the summer demand period.
The economic fallout from the pandemic, coupled with a surge in supply, has reversed the usual spot price cyclical behaviour, with a clear downward trend from the pre-winter peak of $6.80 per MMBtu last October to the lows reported in May.
This spot price recovery may not be primarily driven by improving demand, rather it may be linked to rising prices in the US and Europe, due to a hotter than usual summer boosting air-conditioning demand for electricity.
US natural gas futures have gained 65.2% between the closing low for the year so far of $1.482 per MMBtu on 25th June to the $2.448 finish on 21st August.
Similarly, UK natural gas futures rose 168% from their year-to-date low of $1.027 per MMBtu to a close of $2.755 on Friday of last week.
The increase in these two benchmarks was a likely catalyst for spot Asian LNG’s recent gains, as well as some signs that supply had been tightening, with a maintenance shutdown scheduled for Chevron’s Gorgon project in Western Australia and cancellations of US cargoes.
However, the supply issues may not have much impact, with Gorgon now undergoing a phased shutdown, and more US cargoes expected in the coming months.
LNG imports by North Asian countries are on track to be around 16.6 mill tonnes, according to Refinitiv data, which would be the strongest month since February.
Most US projects require a price of $5-$6 per MMBtu to make shipping to Asia profitable, while Australia’s east coast ventures based on coal-seam gas are believed to need a spot price of at least $3.50 to make money, although the west coast projects only need closer to $2.
While the recovery in Brent to a range around $44 per barrel will once again boost oil-linked LNG prices, this will likely only be a factor in the fourth quarter of this year.
