Liquefied natural gas prices have broken a record, trading at over $34.40 per million British thermal units as forecasts of a cold winter in northern Asia and strong demand from other markets, notably Europe, deepen the gap with supply.
The LNG benchmark price on the spot market for cargoes set for delivery in December traded at $34.52 per mmBtu in Asian trade today, topping another record-breaking session on Thursday. The contract for January delivery was higher still, at $34.62 per mmBtu.
The spike in prices on the spot market followed an order by Beijing to energy suppliers to secure gas for the winter at all costs. Bloomberg reported, citing unnamed sources, that Vice Premier Han Zheng had ordered all power utilities to make sure they have enough supplies of raw materials, including coal and oil, for the security of power supply during the cold season—whatever it took.
What this means is that the prices of all fossil fuels will continue rallying, which will aggravate an already difficult situation in Europe as it further shrinks the availability of liquefied natural gas for the continent. Unfortunately for Europeans, it might also tighten pipeline supplies: China has announced pipeline gas auctions, meaning Russia may direct more gas to the East.
“It’s hard to believe that just 18 months ago the Asian LNG market saw record low prices of below US$2/MMBtu. If we do see strong Chinese buying, it will put further pressure on the European natural gas market,” ING said in a note today.
“Strength in the gas market continues to be supportive for oil prices. Spot Asian LNG is trading at an oil equivalent of around US$177/bbl and so there is a clear incentive for gas-to-oil switching,” the Dutch financial services giant also said, confirming signals of higher oil prices still to come on top of the gas price records.
By Irina Slav for Oilprice.com
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