Decline in spot LNG prices triggers buying interest from Asian importers

Singapore — The steady slide in spot LNG prices below the $6/MMBtu level has brought several Asian buyers out of the woodwork even though the market is divided between expectations of further price declines and some bullish sentiment in the run-up to summer.

The S&P Global Platts JKM benchmark was assessed at $5.897/MMBtu on Feb. 25, the lowest level since Oct. 15, slipping below the $6/MMBtu level this week.

While some buyers are still on the sidelines hoping that prices will dip further, demand has emerged from restocking activity in South Korea, incremental gas-fired power demand in Japan following the earthquake, and deferred gas demand from India.

In China, February LNG cargo arrivals have slowed in comparison with Japan and South Korea, where heavy cargo arrivals could exceed January levels, and traders said prices might need to fall further for China's purchases to pick up.

"Buying activity from northeast Asian end-users is slowly picking up post the Lunar New Year holidays, but overall cargo availability for April deliveries is sufficient," a South Korean end-user said.

"There is buying interest, but bids are still lower than current spot levels," a supplier from the Atlantic basin said, adding that buyers have not stepped up much since the US polar vortex in the week ended Feb. 20.

One buyer said there is not much support considering downstream natural gas prices in China, and trucked LNG prices could still fall by a few hundred yuan in a single day. Chinese trucked LNG prices were still around Yuan 3,000/mt in the week started Feb. 21.

Mixed demand

Market participants are caught between taking the plunge now or waiting for summer oversupply similar to 2020, when spot LNG prices dropped below $3/MMBtu. Early summer projections were bearish, but more bullish views have emerged.

Some recent buying interest included China's Foran Energy, which issued a tender for April 1-7 delivery on Feb. 22, DES Zhuhai terminal. The tender, which closed on Feb. 23, was awarded in the low-$6/MMBtu, sources said.

In addition, Taiwan's state petroleum company CPC was seeking April, May and June cargoes in a tender which closed in the week of Feb. 21, DES Taichung. South Korea's GS Caltex, along with at least two second-tier Chinese buyers, were also heard seeking April cargoes.

On the other hand, at least one Japanese entity was heard offering their surplus April cargoes. Multiple sources reported Kansai Electric offering cargoes from Pluto for H1 April and early-May deliveries bilaterally, while another major Japanese importer was contemplating a cargo offer for the second half of April.

Indian buyers meanwhile were still clearing deferrals of previous months with prompt tenders for Feb-Mar deliveries. Indian Oil Corp, Reliance Industries, Petronet LNG and Gujarat State Petroleum Corp had closed six tenders for deliveries from second half of Feb to second half of Mar over the Feb. 16-25 period.

US deepfreeze thaws

US supply disruptions affecting roughly 15 LNG cargoes offered some price support, but projections for summer cancellations have started to drop, indicating stronger summer demand for 2021.

"Asia is still in a very tight balance with in-basin production continuing to underperform compared to year-ago levels. This has put an emphasis on drawing on supplies from outside the region to help meet demand and to help refill storage stocks which were drawn down earlier this year," Jeff Moore, S&P Global Platts Analytics' Asian LNG manager, said.

He said the US disruptions in the past week certainly didn't help the situation, especially considering that more than 60% of landed LNG from the US over the past two months has gone to Asia.

"However, given the strong levels of supply that were incentivized into the region for February, storage has already started to refill, and with milder temperatures on the horizon, the supply disruptions are likely to have a more muted impact on spot prices in Asia," Moore said.

"JKM isn't expected to see significant support from these disruptions unless we see a strong rally in European hub prices first," he added

A market participant based in southern China said that even with multiple cargo delays, it would have little impact on Asia, as the arbitrage has been closed and most US cargoes were headed to Europe anyway.

The H2 April-JKM/H1 April-Mediterranean spread against the USGC to North Asia/Southwest Europe freight has been hovering around minus 15 cents, in negative territory since Feb. 16, Platts data showed.

Rising oil prices

Also on the minds of importers is their long-term versus spot market exposure as oil prices continue to climb, with ICE Brent futures crossing $67/b during Feb. 25 trading.

"We see staying power in the recent oil price rally and increase our forecasts by $6-7/b, due primarily to a more subdued response function adopted by the US tight oil producers," Barclays said Feb. 25.

Barclays now expects Brent to average $62/b in 2021, rising from $58/b in the second quarter to $67/b by year-end.

Earlier in the week BoFA analysts raised their Brent assumption for 2021 to $60/b from $50/b previously, citing the full impact of OPEC+ intervention, winter demand and recent weather disruptions in the Permian basin combining to tighten supply at the front of the curve.