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APPEC: Surging Asia LNG spot prices point to sustained volatility over winter: Vitol executive

Highlights

Volatility is a given in a 'tense winter market': panelists

Vitol factors in 20%-30% chance of cold snap this winter

Surging Asia spot LNG prices point to sustained market volatility in the coming months despite a slim chance of cold weather this winter, an executive with Vitol, the world's largest energy trading firm, said at the APPEC 2021 conference.

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"It's going to come down to one thing and that's the weather ... in Europe and the Far East," Sid Bambawale, Vitol's LNG trading manager said during a panel discussion, adding that Vitol is working with a 20%-30% probability of a cold winter.

However, he said the market may remain volatile for months to come, with any cold snap still likely to trigger a sharp jump in prices.

S&P Global Platts JKM price for Asia spot LNG was assessed at $32.229/MMBtu on Sept. 28, the highest seen in the month of September and the highest since January.

This summer has already witnessed an uncharacteristic surge in Asia spot prices during a traditionally slower trading season for LNG in the region.

Bambawale said the "genesis" for these record level prices built up from the preceding winter, during which inventories were "drawn down dramatically more than people anticipated and planned for."

A "very strong" rebound in LNG demand both in China and Europe ensued, which led to huge draws on inventories that have fallen to multi-year lows at the end of summer.

Supply outages at large liquefaction plants in the Atlantic -- Freeport LNG and Papua New Guinea LNG included -- have driven prices higher amid tight market conditions.

The commercial director for LNG and gas overseas trading at Novatek, Yuriy Eroshin, estimated global utilization of liquefaction facilities stood at a record low of 65%, 10 percentage points down from the previous year.

"Hopefully, it's driven by the efficiency and maintenance of liquefaction facilities, and this will ramp up as the winter season is starting and this will help stabilize prices," Eroshin said during the same panel session.

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A strong correlation has developed between Asian and European spot prices, with increases in one region closely tracking those in the other.

"One big gas operator in Russia is still careful of sending gas to Europe and that certainly has an impact on Europe's TTF spot prices," TotalEnergies China vice president for LNG, Denis Bonhomme said, alluding to the struggle Northwest Europe has faced this summer to secure piped gas from Russia.

Bonhomme described the winter LNG market outlook as "tense", considering forward prices for LNG are trading well above oil parity values.

Record high LNG prices have stoked fears of countries back-sliding on efforts to transition to cleaner burning energy.

Europe has already turned up coal-fired power generation, while countries in South Asia look set to either resume or ramp up fuel oil imports.

"High prices and the market out of balance would not be helpful for buyers or suppliers," Andrew Walker, vice president for LNG strategy and communication with US LNG producer Cheniere said during the panel session. "We would like to see the market back to balance and LNG showing its affordability and reliability as a fuel in the fight against climate change."

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