Asian prices fall as Lunar New Year reduces trading

Asian spot LNG fell this week, tracking gas prices in Europe, amid muted demand from China as the Lunar New Year holiday reduced trading activity in Northeast Asia. 

The average LNG price for March delivery into Northeast Asia fell to $25.00 per metric million British thermal units (mmBtu), down $2.00 or 7.4% from the previous week, industry sources said. 

The average price for April delivery was seen at $27.50/mmBtu, they added.

"LNG prices are set for continued volatility as we head through the rest of winter. European gas fundamentals are softening, with LNG imports hitting record highs, while Russian pipeline imports are recovering from their slow start to 2022," said Edmund Siau, LNG analyst at consultancy FGE. 

"However, the European gas market remains tight, and Russia-Ukraine tensions mean that a healthy risk premium is baked into current TTF (Dutch gas) prices. Several Asian buyers have re-emerged to purchase cargoes to replace inventories, and we expect more spot procurement activity in the coming weeks," he added. 

Europe continues to be reliant on LNG amid low Russian gas supply. The arbitrage between Asia and Europe - or cargo diversion from one market to another - has been shifting back and forth, and there is a risk that European LNG imports could slow in case of any increase in Asian demand and prices. 

Cooler weather expected across the main Northeast Asian markets could prompt demand from end-users and support prices there going forward, Refinitiv gas analysts said.

Earlier on Thursday, Russia agreed a 30-year contract to supply gas to China via a new pipeline, under which Chinese state energy major CNPC will get 10 Bm³ of gas a year, a step that will affect the country's LNG import outlook.

"Piped gas from Russia can be supplied to northern China at prices that are competitive when compared with LNG," said Ken Kiat Lee, analyst at consultancy FGE.

The International Energy Agency (IEA) said in report this week that China will remain the single largest country contributor to LNG import growth, but its growth rate could drop to 9% in 2022, from 17% in 2021, due to the ramp-up of pipeline flows from Russia and an overall slowdown in gas demand growth.

Global LNG trade expanded by 6% last year, from 1% in 2020, according to the IEA, but growth is expected to decline to 4% this year. 

Pacific LNG freight spot rates fell further to $19,250 per day on Friday, while Atlantic rates fell to $2,250 per day, according to Henry Bennitt at data intelligence firm Spark Commodities. 

"A negative Atlantic freight rate would indicate that the hire payment received for chartering out a vessel in the Atlantic basin does not cover the fuel cost of ballasting back to the load-port." 

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