LNG-Asia spot prices down; Freeport outage worries European buyers

(Reuters) - Asian spot LNG prices were down this week on renewed lockdown in Shanghai, indicating lesser demand from China, while summer procurement in other Asian countries picked up.

The news of an at least three-week shutdown at Freeport LNG, operator of one of the largest U.S. export plants producing liquefied natural gas, didn't affect Asian prices much, as most of the cargoes were headed to Europe.

The average LNG price for July delivery into north-east Asia was estimated at $23.5 MMbtu, down $1.25 or 5.1% from the previous week, industry sources said.

"While spot prices have declined in recent weeks relative to the earlier days of the Russia-Ukraine war, they are still at extremely high levels compared to historical patterns," said Edmund Siau, LNG analyst at consultancy FGE.

Siau added that difficulties in ramping up alternative sources of power generation push utilities to procure spot LNG even though prices remain high.

Japan-Korea-Marker (JKM) prices - which are widely used as a benchmark for Asian LNG - was assessed by S&P Global Insights at $23.486 per MMbtu on Thursday, following the Freeport outage news, an increase of $1.694, or 7.8%, from the previous day.

In Europe, S&P Global Commodity Insights assessed LNG prices for a delivered ex-ship (DES) basis into Northwest Europe at $23.439 per MMbtu on June 9, at a discount of $3 MMbtu to the July price on the Dutch gas TTF hub.

"European LNG prices flipped to a backwardation from a contango for July deliveries after Freeport LNG stated all June loadings were cancelled due to the fire," said Ciaran Roe, global director of LNG at S&P Global Commodity insights.

"Prices for cargo deliveries for the first half of July reached $23.489/MMbtu, while it reached $23.389/mmBtu for the second half, reflecting a $0.10/MMbtu intramonth backwardation," Roe said.

Backwardation is when the forward price of the futures contract is lower than the spot price, indicating tighter market fundamentals. During a period of backwardation, inventories are tapped as an additional source of supply to meet demand.

Industry sources said that the Freeport outage - which coincides with Nord Stream 1 maintenance and some Norwegian gas maintenance measures - would potentially push Europe to withdraw some volumes from storage.

"Cargoes are not expected to be so easily replaceable given the current global market tightness especially with the United States' position as a swing supplier with flexible volumes. The loss of Freeport volumes mean even a lesser amount of flexible volumes," said Olumide Ajayi, senior LNG analyst at Refinitiv.

LNG freight spot rates continued to rise as vessel availability tightens, with the Atlantic rates estimated at $102,500 per day on June 9, and Pacific rates estimated at $95,250 per day, according to Spark Commodities. (Reporting by Marwa Rashad; Editing by Shailesh Kuber)

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