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GASTECH 2021: LNG spot price volatility key focus for market players

Highlights

India's GAIL warns of potential demand impact

Eni hopes prices will stabilize within a year

Global market becoming increasingly interconnected

The current spot LNG price volatility is a key focus for the industry, market players said Sept. 23, as uncertainty over supply and demand continues to drive market fundamentals.

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Speaking during a panel discussion at the Gastech conference in Dubai, a senior official from India's GAIL said spot LNG prices needed to settle soon to avoid a potential impact on demand.

"LNG is now being looked upon as a commodity with volatile prices," GAIL marketing director E.S. Ranganathan told the conference.

Ranganathan warned that if the volatility persisted for more than six months, it could begin to have an impact on the use of LNG. But, he said: "If the price settles in the next three months, that would be good for the industry."

Spot LNG prices have risen sharply in recent weeks, building on a rally from the start of 2021, in tandem with rising European gas prices.

The S&P Global Platts JKM spot Asian LNG price was assessed Sept. 22 at $27.27/MMBtu, up from just $4.78/MMBtu a year ago.

The Dutch TTF day-ahead contract was assessed Sept. 22 at Eur68.58/MWh ($23.59/MMBtu), more than six times higher than the Eur11.40/MWh price a year ago.

Market stability

Mauro Rinaudo, head of LNG business development, Middle East and South America, at Italy's Eni said LNG price volatility was a characteristic of the market currently.

But, Rinaudo said, Eni was confident that the market would stabilize and return to a certain balance. "We hope it will happen in the next 12 months maximum, possibly less," he said.

However, Rinaudo also said that there were some "structural elements" that could change the market picture.

"One is that the markets are increasingly connected with each other," he said, adding that a reduction in pipeline flows into Europe, for example, could have a knock-on effect on LNG supplies.

"And the growing demand in Asia is pushing up the price, attracting LNG that could be dedicated to Europe," he said. "This is an element that may create some disturbance in the future."

Marco Saalfrank from trader Axpo also said the big swings in demand since during the pandemic to now had also contributed to the price volatility.

Demand rise

Indeed, part of the increase in spot LNG prices has been the quick recovery of LNG demand globally as the economy recovers from the COVID-19 pandemic.

"As economies have been opening up over the past few months, we've seen that LNG demand has surpassed pre-COVID levels now," Stuart Sanders, senior LNG trader at Vitol, told the conference.

"We've seen many countries having a need to reduce the amount of oil and coal burn in power generation and there are other countries that need to replace their depleting gas production," Sanders said.

"These countries provide a huge opportunity for growth for the LNG market, and will likely come to market to try to buy forward to avoid increases in price as demand continues to grow in the next few years," he said.

BP's global head of LNG, Jonty Shepard, said there was also concern in the medium term about new LNG production coming to market.

The COVID-19 pandemic, he said, had led to project delays and even cancelations.

"In the medium-term, there is a bigger question mark," he said, adding: "We do need new production."

Alejandro Sanchez Gestido, global head of LNG at trader Glencore, also said the recent price volatility had put a "magnifying glass" on the capital intensity of the LNG industry and on its efficiencies.