Asian LNG prices surge as buyers shun Russian gas

3/4/2022

Asian spot LNG prices rose this week, buoyed by concerns over Russian supply to Europe as buyers shun Russian gas and LNG in response to its invasion of Ukraine.

The average LNG price for April delivery into northeast Asia was estimated at $40.5 per metric million British thermal units (MMBtu), up $3, or 8% from the previous week, industry sources said.

"Europe and East Asia are continuing to pay high prices and outbidding other import regions such as South Asia to secure supplies," said Alex Froley, LNG analyst at data intelligence firm ICIS. "The market remains extremely strong, and extremely volatile. Traders aren’t just reacting to today’s flows and demand levels, but are anticipating possible disruptions, policy changes or sanctions in the future."

Price agency S&P Global Commodity Insights' Japan-Korea-Marker (JKM), which is widely used as a spot benchmark in the region, climbed to $59.672 per MMBtu on Thursday, data showed, tracking a surge in European gas prices as markets panic over Russian supply.

The benchmark Dutch front-month gas price hit a new record high near 199 euros per megawatt hour (MWh), equivalent to $64.5 per MMBtu, on Thursday. It traded at 190 euros per MWh on Friday.

In Asia, buyers may be unwilling to replicate the price surge on the TTF beyond a notional $50/MMBtu, according to Rystad energy and may adopt a wait-and-see approach or switch to cheaper alternative fuels such as coal.

"However, spot demand has firmed over recent weeks with several tenders emerging from Japanese and South Korean importers as cold weather has stimulated gas demand, and as utilities in Japan have additional restocking requirements to fill," Refinitiv analysts said.

"Bullish sentiment may emerge as an unplanned outage at Malaysia LNG Satu is likely to take around two cargoes off the market between March and April, potentially triggering replacement demand," said Kaushal Ramesh, senior LNG analyst at Rystad Energy. "However, the arbitrage (cargo diversion from one market to another) signal for marginal cargoes in the Atlantic is heavily slanted to Europe, as Asian buyers may be unwilling to replicate the price surge on the TTF beyond a notional $50 per MMBtu."

"Atlantic basin charter rates surged to $28,250/day on Friday compared to a negative rate of $1,000/day in the previous week, as charterers look to secure vessels amid the market volatility," said Henry Bennett at Spark Commodities.

Rates for the Pacific also rose and were estimated at $16,000/day.

(Reporting by Marwa Rashad; Editing by Susan Fenton)