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Highlights

India, Thailand buy spot LNG at prices above $30/MMBtu

Reliance sells domestic gas at record premium to oil-linked price

US LNG continues to be diverted to Europe instead of Asia

Asian gas consumers are being forced to import spot LNG at record high prices, which is likely to curb new gas demand growth, accelerate demand destruction for natural gas and amplify concerns about costlier goods and services.

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Emerging market economies are not only grappling with high spot LNG prices but also oil prices staying above the $100/b mark, which means that even term LNG imports are the most expensive they have been in years.

ICE May Brent futures were trading above $121/b in Asian hours March 24, which means oil-linked LNG prices could be around $18/MMBtu. The Platts JKM for May delivery was assessed at $33.841/MMBtu on March 23, according to S&P Global Commodity Insights.

High LNG prices have curbed spot trade with one European utility saying that market players have been discussing possible transactions and trying to arrange swaps, but nothing is being finalized due to price volatility, while Japanese and Korean utilities are less willing to procure more cargoes due to high prices.

"We don't want to buy any cargo even though our inventories aren't sufficient. We will roll the requirements till later in June or July," one South Korean importer said.

Through March, price sensitive LNG importers like Pakistan, India and Thailand have had to pay around $33/MMBtu-$36/MMBtu for spot LNG cargoes, representing some of the highest LNG prices these countries have had to shoulder.

State-run Indian Oil Corp. bought two spot LNG cargos from a trading house on March 21 for $33.7-$33.8/MMBtu and $33.3-$33.4/MMBtu, for delivery on May 7 and June 4, respectively, according to S&P Global data.

On March 16, India's Gujarat State Petroleum Corp bought a spot cargo for $35.2-$35.3/MMBtu from a trading house for delivery in March 28-April 15. Thailand's PTT bought three spot LNG cargoes for $35-$36/MMBtu for delivery in the second half of April. Pakistan bought a cargo for March delivery in the mid-$20/MMBtu.

Domestic market

In several countries record high global gas prices are percolating into domestic markets.

India's diversified conglomerate Reliance Industries Ltd. sold natural gas from a coal-bed methane block in the central state of Madhya Pradesh for around $23.5/MMBtu, company officials said in the week of March 17.

The price reflects a large premium over the base price of 14% Dated Brent as stated in the tender for one year of supply of 0.65 million cubic meters of gas per day. The tender was awarded to gas companies including state-run GAIL Ltd., Gujarat State Petroleum Corp and Shell, officials said.

The quote received by Reliance for CBM gas is higher than the price state explorers such as ONGC and Oil India Ltd receive for gas nominated from their upstream fields, which is capped at $6.13/MMBtu. Even Reliance's natural gas from its KG basin fields is sold at similar levels.

A domestic gas tender priced in the low-to-mid $20s/MMBtu is still at a better price than spot LNG, a trader said. It's still cheaper compared to spot LNG even though it's costly, which may be why such a price was agreed, considering current high Brent crude and spot LNG prices, the trader said.

"It's supply and demand. Limited quantity [offered through the domestic tender] might be one factor too. With inadequate gas supply, if someone can get [gas] in India domestically at lower prices than imported LNG then why not," a second trader said.

A third trader noted that India's gas demand was hanging in the balance unless prices drop, and based on the forward curve, December 2022 JKM prices are still not affordable for India's industrial sector compared to liquids like LPG.

India is working to align natural gas prices with global markets and a government panel has submitted a price reform proposal for locally produced natural gas where the entire output can be sold on the domestic gas exchange platform for price discovery.

Trade flows

Meanwhile, high spot LNG prices in Asia are not able to draw in enough US LNG to ease prices amid better European arbitrage opportunity, with Asia's total February LNG inflows at its lowest in years.

"The prompt market is very tight, some restocking demand is arising from Asia but the arbitrage still looks closed, [which means] less inflows from the US," a Guangdong-based source said.

A European utility said it doesn't expect many US cargoes headed to Asia, and March and April US cargoes will largely go to Europe. However, the arbitrage to Asia has to eventually open again as the region is structurally short and LNG inflows can't be closed for too long.

"JKM/TTF is at a premium now but it's not enough to support US cargoes to flow over to Asia. European LNG prices have to go down further and the downtrend has to sustain for a while more before the arbitrage can open," a Beijing-based source said.