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Strong China demand, oil drive spot Asia LNG prices to highest since Jan 2015

Asia LNG spot prices surged to a near three-year high Monday as surgingChinese demand and robust oil prices coincided with persistent supplyanxieties.

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The Platts JKM for January was assessed at $9.85/MMBtu Monday, thehighest price since January 9, 2015, and up about 8% since the start of themonth.

China imported 28 million mt of LNG in January-October 2017, up 47% from19 million mt in the same period last year, closing the gap to the world'ssecond-largest importing nation, South Korea.

The country's policy directives encouraging coal-to-gas switching tocombat air pollution mean that LNG imports were increasingly needed to feedthe country's enormous energy appetite.

The replacement of coal-fired heating with gas-fired boilers at millionsof Chinese households this year also boosted winter LNG purchases.

This additional demand was satisfied through spot procurement largelythrough majors CNOOC and PetroChina. Both companies were active in spotdealmaking, either via bilateral transactions or participating insell-tenders, sources said.

In particular, CNOOC awarded a rare tender for up to seven Decemberdeliveries in late-September, sources said. Other importers like GuanghuiEnergy opted to do short-term strip deals, while others like Sinopec and Jovorelied on long-term contracted volumes.

"China's activity on the spot market this year really took out a lot ofexcess supply, especially for leaner cargoes," an international trader said.

Market participants also attributed this year's spot price rally tohigher oil prices which boosted the price attractiveness of spot cargoes.

Dated Brent prices have been trading in the $60-64/MMBtu range since theend of October, levels unseen since June 2015.

Asian buyers of long-term volumes fixed on an oil-linked basis couldstill be incentivized towards spot procurement especially during peak-winterdemand. On the other hand, spot trading activity in the weaker demand periodsof spring and autumn were boosted by traders and portfolio players optimizingoil-linked positions.

However, supply concerns also accelerated the spot price jumps this year.

Spot prices had surged almost 60% since the start of September, with therally ignited by the disruption of US Sabine Pass output due due to HurricaneHarvey. This mean offtakers had to source spot LNG cargoes from elsewhere, aswell as optimize their Pacific positions.

The continued delay of Wheatstone LNG's start-up in Australia also meantthat supply was unexpectedly constrained at the start of the fourth quarter. The facility shipped its first export cargo to Japan's JERA at the end ofOctober.

--Kenneth Foo,

--Abache Abreu,

--Edited by James Leech,