Spot LNG prices languish ahead of seasonal demand uptick

(Reuters) - The price of spot liquefied natural gas remains in a pre-winter lull, but there are some signs that demand for the super-chilled fuel is starting its usual seasonal increase.

The spot price of LNG for delivery to north Asia ended last week at $13.50 per million British thermal units (mmBtu), down 10% on the prior week's $15.00, but still 50% above the low so far in 2023 of $9.00 from early June.

The usual seasonal pattern for the spot price is a rally heading into the northern winter and summer peak demand periods, followed by a lull in the shoulder seasons in between.

In 2022, the spot price rose from $25.50 per mmBtu in mid-November to a peak of $38.00 by mid-December, while in 2021 it gained from $25.50 in early November to $48.30 by late December.

The spot price has shifted structurally lower in 2023 as the energy crisis sparked by Russia's invasion of Ukraine faded, but it's likely the usual seasonal dynamics will emerge in coming weeks.

There are some signs that demand in Asia, the top-importing region, is starting to accelerate, with commodity analysts Kpler tracking imports of 20.76 million metric tons so far in October.

This figure already exceeds the 20.22 million metric tons from October last year and is likely to be revised upwards as more cargoes are assessed.

Asia's September imports were assessed at 22.04 million metric tons, down from 23.26 million in August but above the 20.48 million from September last year.

Demand in top importer Japan is still following the usual seasonal pattern, which generally sees soft arrivals in October followed by strength as the colder weather arrives.

Japan's October imports are estimated at 4.76 million metric tons so far and are likely to at least match the 5.02 million from the same month in 2022 as more cargoes are assessed.

Number two importer China is showing a similar pattern, with October arrivals estimated at 4.6 million metric tons so far, roughly in line with 4.87 million from the same month last year.

India's imports have been trending higher, with September arrivals of 2.15 million metric tons the most since October 2021.

This likely reflects the cheaper spot prices in recent months, which have encouraged Indian buyers, who are generally more price sensitive then those in developed economies such as Japan and South Korea.

Rising Europe?

Europe's LNG imports are also showing signs of life, with Kpler estimating October arrivals at 8.58 million metric tons, up from 7.4 million in September.

The continent's volumes are still down from comparable months in 2022, when Europe's demand for LNG surged as supplies of Russian pipeline natural gas were severely curtailed as a result of the war in Ukraine.

While Europe's natural gas inventories are near capacity, the possibility of higher LNG imports towards the end of winter remains, especially if the usual pattern of colder weather as a result of the El Nino weather event eventuates.

The LNG supply side looks steady for winter, with some lingering concern about possible new strike action at the Chevron operated Wheatstone and Gorgon facilities in Western Australia, which account for about 6% of global output.

A further risk is an escalation of the conflict between Israel and Hamas to the point where shipping in the Persian Gulf is threatened, which would be a concern for cargoes from Qatar, one of the top three LNG exporters along with Australia and the United States.

The opinions expressed here are those of the author, a columnist for Reuters.

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