LNG price decline stimulates further winter restocking by Asian importers

LNG firms in Asia have picked up the pace of winter restocking LNG inventories this month as sub-$30/MMBtu spot prices spurred buying activity for December and January cargoes by major importers such as South Korea's KOGAS.

Over the past week, several large importers in China, South Korea and Japan were seen seeking winter-delivery cargoes amid ongoing production concerns in Malaysia and Nigeria.

With lower spot prices, these buyers had greater incentive to restock and safeguard against lower-than-expected temperatures in winter.

Platts JKM for December, the new front month, was assessed at $29.613/MMBtu on Oct. 19, up 63.8 cents/MMBtu week on week, S&P Global Commodity Insights data showed.

"If prices fall below $25/MMBtu, more consumers could come out to restock as there is smaller risk involved," a Chinese importer said.

Buying interest in South Korea resurfaced late last week, with the largest importer Kogas issuing a buy tender for December-January cargoes, which closed Oct. 19. The total number of cargoes that Kogas was seeking was not specified, although market participants said Kogas awarded close to five shipments -- possibly three cargoes for December and two cargoes for January. The January cargoes were reportedly traded at a premium to the January JKM average, although exact pricing details could not be verified.

According to a South Korean importer, Kogas' priority is to ensure supply security for the domestic market by having a substantial amount of gas in the event of a colder winter.

Posco was heard to have bought a November-December delivery cargo, while SK Prism was also heard to have bought a Dec. 28-30 delivery cargo from a portfolio player on Oct 10, on a JKM-linked basis.

On Oct. 18, South Korea's Ministry of Trade, Industry and Energy enforced an "Energy Diet" on public institutions to ensure energy conservation for the winter season. This set of energy saving measures includes peak limits on heating and reduced lighting.

China's CNOOC was also heard to have bought a Nov. 12-14 loading cargo via an Asia-Pacific supplier participating in a Northwest Shelf LNG sell-tender, while Unipec was heard to be watching the market for December volumes.

Chinese downstream consumers were anticipating higher demand from city gas sectors ahead during winter.

While there was limited downstream capacity to take gas, the need to replenish cargoes and stronger heating demand could emerge if winter temperatures are lower than expected, a Chinese end-user said.

Supply uncertainties another motivation

Following force majeure announcements by projects in Malaysia and Nigeria, buying activity also increased marginally among the Japanese utilities.

Shizuoka Gas purchased a Dec. 7-13 delivery cargo through a limited participation tender that closed Oct. 12, at about $33-$34/MMBtu.

Tokyo Gas was also heard to have bought a December-delivery cargo earlier this month, with other Japanese utilities monitoring winter demand closely.

"Presently, we have sufficient supply but this would also depend on the situation with Petronas' force majeure notice," a Japanese importer said. "If there is cargo reduction by them, we would need to buy spot cargoes."

Petronas has issued a force majeure letter to request that buyers reduce cargo deliveries between November to March, according to sources familiar with the matter.

Although the impact of the force majeure was mainly on Petronas' MLNG Dua plant, the supply balance was broken and there were some adjustments and spillover to other buyers, an Asian supplier said.

Winter procurement strategies

To ensure winter supply security, China's state-owned national oil companies have been told by the National Development and Reform Commission to stop reselling LNG cargoes from their excess inventories.

Domestic demand in China has remained lackluster in recent months due to COVID-19 lockdowns, heightened restrictions to inland transportation and milder temperatures in summer.

However, Chinese NOCs are starting to procure winter cargoes as spot prices are on a downtrend.

Ex-terminal trucked LNG prices reached about Yuan 8,000/mt ($22/MMBtu) in the week to Oct. 14. In comparison, Platts JKM was assessed at $29.2/MMBtu on the same day.

The convergence of domestic trucked LNG prices in China and spot prices of imported LNG has led to a narrower spread of about $7-$8/MMBtu in recent weeks, which could provide buyers of LNG an incentive to switch.

An Asian supplier said Chinese NOCs have made enquiries, while at least one NOC bought a December-delivery cargo.

A source with an NOC also confirmed that they were in bilateral negotiations for a late December-delivery cargo on a fixed-price basis.

Other Chinese end-users said that as the next Spring Festival holidays take place earlier, the winter restocking period is shorter this year. Consequently, restocking demand could be elevated in the next two months.

Fewer deliveries of cargoes to South Korea during winter due to tighter shipping will also lead to demand being concentrated in January, a Northeast Asian trader said.

"Starting from December, power generation operation rates in South Korea will be higher and inventories will deplete faster," the trader said.