In this list
Coal | Electric Power | LNG | Natural Gas

Q1 LNG WRAP: Increased market volatility, high prices curb spot trading in Asia

Oil | Natural Gas (European) | Natural Gas | LNG | Renewables | Emissions | Energy Transition | Nuclear | Electric Power Risk | Electric Power | Coal | Energy | Electricity

Europe Energy Price Crisis

Electric Power | Electricity | Energy | Energy Transition

European Long-Term Power Forecast

Commodities | Energy | Coronavirus | Oil Risk | LNG | Natural Gas | Coal | Electricity | Metals

Coronavirus and Commodities

Energy | Oil | Shipping | Natural Gas | Crude Oil | Tankers | NGL

India snaps up EU's displaced crude as Russian oil curbs kick in

Energy | Energy Transition | Emissions | Carbon | Oil | Crude Oil | Refined Products | Metals | Steel

Slow economic growth pressures China to rebalance carbon reduction ambitions

For full access to real-time updates, breaking news, analysis, pricing and data visualization subscribe today.

Subscribe Now

Q1 LNG WRAP: Increased market volatility, high prices curb spot trading in Asia

Highlights

LNG monthly average spot prices highest in Asia in Q1

Firm demand, supply cuts support prices

  • Author
  • Masanori Odaka
  • Editor
  • Aastha Agnihotri
  • Commodity
  • Coal Electric Power LNG Natural Gas
  • Topic
  • LNG Commoditization War in Ukraine

Spot trading activity in the Asia-Pacific LNG market slowed down sharply in the January-March quarter, as global events such as the Russia-Ukraine war, earthquake in Japan and pipeline gas shortage in Europe drove market volatility and lifted prices, market sources said.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

The first three months of 2022 marked the highest LNG monthly average spot prices in Asia due to strong demand from Japan, supply cuts in Malaysia and Australia, and firm prices in the Atlantic.

The Platts JKM monthly average prices for January, February, and March 2022 delivery were assessed at $35.87/MMBtu, $32.845/MMBtu, and $24.815/MMBtu, respectively, S&P Global Commodity Insights data showed.

The prices were significantly higher compared to the monthly average prices for the same months in 2021 at $8.173/MMBtu, $18.309/MMBtu, and $8.264/MMBtu, respectively, according to the data.

Elevated spot LNG prices led Asian importers to maximize procurement through long-term contracts and reduce spot purchases. For example, most long-term contract LNG cargoes into Japan have been imported at $9-$13/MMBtu for January and February, according to the finance ministry data, while most spot cargoes imported during the first two months ranged from $20-$37/MMBtu.

As a result, multiple Asian importers have been bringing in summer cargoes earlier for spring, or the shoulder demand season.

Spot LNG purchases for January-March delivery were heavily concentrated from Kogas and Japanese importers following a harsh winter and stronger gas and power demand, while additional spot demand from Chinese entities during the quarter was limited, due to low downstream trucked LNG prices and tightening pandemic-led restrictions.

In addition to seasonal factors, spot LNG demand for some Japanese power utilities also increased due to Indonesia's suspension of exporting coal to meet domestic needs, which disrupted shipping schedule to Japan from January to early-March.

Japan earthquake

Further tightening the prompt spot LNG market was a magnitude 7.4 earthquake, offshore Fukushima in northern Japan late March 16. The earthquake resulted in the shutdown of a dozen coal, gas, and oil-fired power plants, taking out more than 6 GW power generation capacity.

Utilities situated nearby such as Jera and Tohoku Electric purchased multiple late-March and April delivery cargoes, which impacted spot demand.

According to Japan's Ministry of Energy, Trade, and Industry, Japanese LNG inventory for power generation from Feb. 6 to 27 has fluctuated between 163 million mt to 182 million mt, compared to 198 million mt in the last four years. The levels went down to 147 million mt to 172 million mt from March 6-27.

Supply in the Asia-Pacific was tight in the first three months following lower production from upstream gas fields such as Pegaga, which resulted in Petronas to exercise downward quantity tolerance to Japanese importers.

Meanwhile, a record heatwave that hit western Australia late-January caused a few trips at various LNG liquefaction facilities, resulting in some production loss and delays in loading for cargoes heading to Northeast Asia.

Russia-Ukraine war

The conflict between Russia and Ukraine since Feb. 24 further raised prices of European gas and LNG in Asia throughout 2022, as several countries avoided buying Russia-origin LNG in the spot market.

From Feb. 21-24, the JKM/TTF discount was 66 cents/MMBtu $1.569/MMBtu, but the spread widened to a discount of $15.1/MMBtu on March 4. Since then, TTF has been hovering above JKM on most days, with May JKM being assessed at $29.249/MMBtu, or minus $3.806/MMBtu, compared to TTF May.

Activity in LNG and European gas futures contracts cooled down significantly since late February, as higher margin requirements forced participants to curtail trading. This reduced the ability of companies to hedge effectively and manage risks associated with the recent volatility in global gas markets, industry sources said.

The volume of JKM LNG contracts cleared on ICE in January, February, and March averaged 80,408 lots, 68,334 lots, and 65,137 lots, respectively compared to 91,571 lots, 62,295 lots, and 79,804 lots in 2021, respectively, for the same months, according to the exchange data.

In January, February and March, a total of 44, 27, and 17 bids, offers, and trades were posted during the Asian physical MOC process -- significantly lower compared to 50, 63, and 55 bids, offers, and trades posted in the corresponding months last year. All bids, offers, and trades reported in Q1 2022 were either JKM-linked or TTF-linked.

In comparison, 123 out of a total of 165 bids, offers, and trades reported during the physical MOC process were fixed price for Q1 2021.

A similar trend was observed in the bilateral market, with most trades reported concluded linked to a price benchmark. But there was still some resistance from state-owned importers in India, Pakistan and Thailand who continued to issue buy-tenders that requested offers to be made on a flat price basis. Sellers said that participation in such tenders was limited by the daily market price volatility and long validity periods attached to offers.

For the derivatives MOC process, a total of 215 bids, offers, and trades were reported for January, while 194 bids, offers, and traders were reported a month later in February. For March, there were 72 bids and offers reported for the derivatives MOC process.