Spot Asia-Pacific LNG prices hit a record high on Sept. 30. on persistent supply constraints in global gas markets and strong winter restocking demand among Asian end-users.
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The S&P Global Platts JKM for November was assessed $2.82/MMBtu higher day on day at $34.47/MMBtu on Sept. 30. This is the highest level for the LNG benchmark for Asian spot LNG since it was launched in early 2009.
LNG prices in the region continued to be supported by robust European gas hub prices and intense portfolio optimization activity by international LNG suppliers, according to industry participants.
Lower winter temperatures forecast in China and South Korea, as well as concerns over a power shortage in China were sparking spot demand for winter cargoes by end-users.
"JKM's record high helps showcase how tight global gas markets are at the moment," Jeff Moore, Manager, S&P Global Platts Asian LNG Analytics, said.
"Unlike the record set earlier this year, JKM is firmly supported by elevated European hub prices and both could certainly go higher this winter especially if aided by colder-than-normal temperatures," Moore added.
The previous record high of $32.50/MMBtu on Jan. 14 was set amid transportation bottlenecks, supply outages and record winter temperatures boosting end-user demand.
In Europe, inflows of LNG remain constrained due to strong regional demand and reduced local supply, while demand for gas in the region has been strong due to the economic rebound post-lockdowns
The relentless surge in European gas hub prices, as well as this month's LNG supply disruptions in the US, Oman and Malaysia have ramped up the competition for spot LNG cargoes between the Pacific and Atlantic basins -- pushing prices up even further.
Furthermore, a recent power crunch in China was creating some anxiety over LNG inventories in the world's top LNG importer.
LNG major Unipec had also in the week ended Sept. 26 purchased up to 15 LNG cargoes in a strip tender for deliveries from late-November 2021 to March 2022, sources with the tender document told Platts.
This buy-tender, along with another one for several cargoes by another large northeast Asian power utility, has heightened concerns among industry participants about how well-prepared Asia-Pacific importers might be for the winter.
This was despite the fact that several Asian end-users had started their winter preparations months ahead, with Unipec, ENN, CNOOC and CPC notably purchasing dozens of cargoes in strip buy-tenders -- and depleting available spot supply across the year.
Fear of sustained Q4 rally
In the near-term, market participants fear that colder weather across the north Asia, or JKTC region, during the winter season could exacerbate the tight cargo supply situation.
"Although the current price levels are unsustainable for the long-term, they can easily remain through the winter heating season as consumption is elevated by inelastic demand sectors," Moore said.
This week, lower temperature forecasts than average in China and South Korea has led to some end-user interest in picking up spot cargoes to ensure inventory levels were at even more comfortable levels, sources said.
The significant strength in prompt prices have tilted the market structure into a rarely seen backwardation into the peak winter months.
Platts assessed the JKM derivative forward curve at $35.15/MMBtu, $34/MMBtu and $33.70/MMBtu for the December, January and February contracts, respectively.
With competing fuels much cheaper than LNG, market sources said that the high LNG spot prices would devastate spot demand in South Asia, as well as deter new entrants to the LNG market in Southeast Asia.
"Whatever demand we are noticing from Indian players [are for] own demand ... for their own refinery needs, which they need to import for their own consumption. [At such prices, there is no new demand, no new customers," an Indian LNG importer said.
With Q4 prices expected to remain elevated, the end-user said many gas consumers were now contemplating a switch to alternative fuels to meet production capacity.