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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Why Are Asian Spot LNG Prices Plunging?

In more unusual moves for spot liquefied natural gas (LNG) in Asia, prices for the super-cooled fuel last week fell to a nine-month low amid an uncharacteristically oversupplied market due to continued warmer than usual winter temperatures in the Northern Hemisphere, which includes North Asia. Japan, China and South Korea and Taiwan make up more than 70 percent of global LNG demand, with that amount forecast to increase to 75 percent amid more LNG demand from China as the country pushes through with its government mandate that at least 10 percent of its energy mix be comprised of natural gas by 2020 to offset record air pollution, with further earmarks to 2030.

Spot prices for March delivery to Asia last week fell to $7.00 per million British thermal units (MMBtu), down $1 from the previous week, their lowest since April 6, Reuters reported on Friday, citing trade sources. Seasonally, prices are their lowest since this time three years ago.

Cargoes now headed to Europe

Lower spot LNG prices in Asia is also causing LNG producers and supplies to divert cargoes to Europe, an unusual move, especially this time of year, given that historically higher demand in the Asia-Pacific region fetches much higher prices, especially during winter. LNG prices in Asia for March have now fallen below the UK front-month gas price.  Related: Baker Hughes Upbeat About 2019

Global energy and commodity trading company Vitol changed the destination of two LNG cargoes sourced in the U.S. to northwest Europe from Asia due to the discount on Asian prices compared to those in Britain, the Reuters report added, citing an industry source familiar with the matter.“The market’s getting kind of crazy,” a Singapore-based industry source also said, adding that derivatives volumes in Asia have dropped recently.

Lunar New Year and trade war factors

Approaching Lunar New Year in China (called the Spring Festival on the mainland) also contributed to the past week’s weakened demand and downward pressure on prices since factories in the country will be shut down for around a week. Moreover, this year reports indicate that factories could be shuttered longer than usual as well as other business shutting down longer due to economic headwinds from ongoing trade tensions between the U.S. and China. Related: Exxon Goes All-In On The Permian

The two sides have set a March 2 deadline to reach a trade deal. Unless a deal is reached that appeases U.S. concerns over not only trade imbalances but intellectual property rights and cyber security issues, President Trump has pledged to increase existing tariffs of 10 percent on some $200 billion worth of Chinese goods to as high as 25 percent, while also possibly putting tariffs in place on another $267 billion worth of Chinese goods entering the U.S.

The two sides are reportedly optimistic about the progress made in the high-level trade talks in Washington which ended on Thursday, raising hopes that despite the need for more work, a deal to end their trade war could be reached before stiffer tariffs kick in. Trump said he would meet Chinese President Xi Jinping, potentially more than once, to seal a deal.

Not a repeat performance

Last year, Beijing pushed too quickly to replace dirtier coal usage for both residential and industrial use with cleaner-burning natural gas, resulting in a supply crunch that saw the government redirect gas supply from factories to residential end users during an unusually cold winter season. The ongoing cold temperatures last year in China also created extra demand for spot LNG as well as corresponding support for LNG prices in Asia. However, in the ensuing year, China procured more LNG during the months before winter earmarked for storage to head off a repeat of last years’ gas supply mishap, removing current price support in spot markets.

By Tim Daiss for Oilprice.com

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  • Martin Davey on February 04 2019 said:
    Tell me more about LNG project in Kitimat B C Canada. When it’s starting and how big of a camp this will be ? Thanks

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