Economic recovery and a rebound in liquefied natural gas demand in the world’s largest LNG importing region, Asia, are set to keep spot regional LNG prices around current levels of $10 per million British thermal units (MMBtu) for most of the summer, which could be the highest price for this time of the year in seven years.
Despite concerns about stalled short-term spot demand in India and Japan due to the COVID resurgence, Asia’s imports are holding up strong in May, according to vessel-tracking and port data from Refinitiv, cited by Reuters columnist Clyde Russell.
LNG imports have been strong since the end of the winter despite the typically weak ‘shoulder season’ between peak winter and peak summer demand. The harsh winter in the northern hemisphere led to larger-than-usual inventory withdrawals, especially in South Korea—the world’s third-largest LNG importer. Now the region is restocking for summer demand for electricity, with spot cargo demand robust for this time of the year.
As a result, spot LNG prices in Asia are assessed at around $10/MMBtu these days—a fivefold jump from last year’s summer prices of below $2/MMBtu when the coronavirus wiped out demand and both suppliers and importers faced high uncertainty about short-term market trends.
LNG futures also suggest around $10/MMBtu prices from June to September, suggesting a relatively tight market in Asia this summer and what could be the highest summer performance since 2014, Reuters’ Russell notes.
LNG imports assessments from Refinitiv show robust imports in May in all four top global importers: Japan, China, South Korea, and India.
India’s LNG demand has weakened in recent weeks—signs started to emerge earlier this month, with shippers diverting LNG cargoes away from Indian terminals because of lower demand for gas for commercial activities and transportation, shipping and trade sources told Reuters.
But ship-tracking data from Refinitiv suggests that India’s LNG imports in May could be higher than those in April. The weakness is expected to show up in the June spot demand.
While India—and Japan to an extent—are expected to see weaker spot LNG demand next month, China is supporting the Asian market with imports expected to rise by nearly 30 percent in May compared to May last year.
“Looking forward, strong demand recovery in key Asian markets will be met by equally strong supply recovery in 2021. This should prevent a repeat of summer 2020 supply curtailments and reduce the likelihood of a repeat of last winter’s prices,” Gavin Thompson, Vice Chairman, Energy – Asia Pacific at Wood Mackenzie, wrote in an analysis last month.
Spot prices at around $10/MMBtu in Asia, plus a tighter market in Europe with below-average gas inventory levels, is great news for U.S. LNG exporters.
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Europe had already started to restock with natural gas following a harsh winter that drained inventories when a cold snap in April caused unusual additional withdrawals from storage.
“A cold snap in April caused a counter-seasonal net withdrawal of inventory, worsening the storage situation which for several months has been running below seasonal averages,” WoodMac said in its Q2 LNG short-term trade and price outlook this week.
Higher LNG spot prices both in Asia and in Europe would leave the window for U.S. LNG exports to those two regions open throughout the summer as the cost for shipping American LNG would be lower than the spot prices in Asia and Europe.
Prices at the Dutch Title Transfer Facility (TTF) hub close to the highest since 2018 and Asian spot price at above $10/MMBtu would continue to incentivize buyers to import record or near-record volumes of American LNG, analysts told Reuters this week.
U.S. LNG exports set an all-time record in March 2021 at 10.5 Bcf/d and averaged 9.2 Bcf/d in April—the most exported LNG for those months since the United States began exporting it in 2016, according to EIA data.
This month, U.S. LNG exports are expected to drop to 8.6 Bcf/d. But exports are set to jump above 9.0 Bcf/d in the summer months to meet summer peak demand in Europe and Asia, the EIA said in its latest Short-Term Outlook (STEO). Annual U.S. LNG exports are forecast to average 9.2 Bcf/d in 2021 and 2022, up from 6.5 Bcf/d in 2020.