Asian spot LNG edges to highest level since January ahead of winter

SINGAPORE (Reuters) — Asian spot prices for LNG edged to their highest level since January this week, as the market gradually tightened ahead of the peak-demand winter heating season and as consumption in China soars amid its huge gasification program.

Spot prices Asian LNG rose 10 cents to $8.50 per MMBtu, their highest since January this year.

Climbing Chinese demand amid its huge program to move millions of households away from coal to gas heating as well as a push for LNG as a transport fuel have helped drive prices 55% higher from their 2017 lows.

Average January to August 2017 Chinese LNG imports were 2.8 MMt, up from 1.9 MMt during that period of last year and 1.6 MMt for 2015, Thomson Reuters Eikon data showed.

Prices have also been supported by strong imports from top buyers Japan and South Korea, which have been stockpiling in preparation of the peak-demand winter heating season, which is about to start in the northern hemisphere.

Strong overall demand has tightened global LNG markets, which have been marked by oversupply since 2014 as production, especially in Australia and the United States, has jumped.

PRICE CAP?

Despite the tighter conditions, many traders expect the spot LNG market to be capped, which is also reflected in the forward curve which sees prices fall back below $6 per MMBtu by mid-2018.

“Let’s not get overexcited. We saw exactly the same thing last year. Prices always rise ahead of winter. Much depends on how cold this winter will be in North Asia. Once that’s over, it all depends on supplies. Watch the last batch of Australian production come online. If they start up on schedule, prices will fall right back to their most recent lows,” said one LNG trader.

Current spot LNG prices are also now also slightly above oil-indexed prices, which are seen as a resistance level for spot markets.

On the supply side, more production is expected to emerge from Papua New Guinea and Russia’s Sakhalin II plant, and output in Australia is also expected to rise as the last batch of its mega-projects gradually starts up production.

Australia expects to increase LNG exports by 16% from mid-2018 as $180 B as new projects hit their stride, nearly catching up with Qatar, the world’s top supplier.

Australia’s LNG exports are forecast to climb to 74 MMt in the year to end-June 2019, from 63.8 MMt forecast for this year and 52 MMt last year. By comparison, Qatar last year exported 77.6 MMt.

Reporting by Henning Gloystein; Editing by Joseph Radford

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