Asia LNG loses some strike froth, but fundamentals are supportive

(Reuters) - Spot prices of LNG retreated in Asia as the threat of imminent strike action at three Australian plants eased, but solid fundamentals are keeping prices elevated for future deliveries.

The LNG spot price for delivery to North Asia slipped to $13.00 per million British thermal units (mmBtu) for the week ended Aug. 25, down from $14.00 previously, but still 44% above this year's low of $9.00 from early June.

The retreat came as Woodside Energy reached an agreement with labor unions at its North West Shelf LNG facilities in Western Australia, averting industrial action that had been set to begin early next month.

However, workers belonging to the same unions voted to authorize strikes at two LNG plants in Western Australia operated by Chevron, although it will likely be several weeks before any industrial action.

Chevron's Gorgon and Wheatstone projects account for about 5% of global LNG supply, but industrial action is unlikely to have an immediate impact on shipments as it is likely to start with low-level activities such as overtime bans.

The risk is that Chevron and the unions are unable to bridge their differences and the action escalates to the point where cargoes are cancelled.

This would probably happen around October and November, just as Asian demand for the super-chilled fuel accelerates to meet peak winter demand.

Already there are signs that prices are likely to increase for the northern winter, with increases being seen in New York-traded contracts linked to the benchmark S&P Global Commodity Insights Japan-Korea Marker.

The front-month contract, which matures on Sept. 13, ended at $13.46 per mmBtu on Aug. 25, while the contract that matures on Dec. 15 finished at $18.25.

The December contract was at $17.61 per mmBtu a month ago, which means it has risen 3.6% over the past four weeks.

The December contract is also at a premium of 35.6% to the front-month future, which suggests market participants are expecting a tighter market for the northern winter.

Demand up

There are signs that Asian LNG demand is ticking higher as utilities prepare for the colder weather, with the top-consuming region expected to import 23.92 million metric tons in August, data from commodity analysts Kpler shows.

This is up from 21.61 million metric tons in July and would be the strongest month since January 2022.

Japan, which last year reclaimed the title of the world's biggest LNG buyer from China, is forecast to import 5.73 million metric tons in August, up from 5.09 million in July and the most since February.

LNG inventories held by Japanese utilities dropped to the lowest in more than a year, to stand at 1.81 million metric tons by Aug. 20, data from the Ministry of Economy, Trade and Industry (METI) shows.

That was the lowest since April and was also well below the 2.75 million metric tons from the end of August last year.

This suggests Japanese utilities are likely to seek more cargoes in coming months to ensure sufficient winter supplies.

China's appetite for LNG has also increased in recent months, with Kpler tracking arrivals of 6.16 million metric tons in August, up from 5.92 million in July and 4.83 million in August last year.

However, as Asia's LNG demand increases, Europe's is waning, amid high levels of natural gas inventories and demand destruction as the continent turns away from the fossil fuel after the energy crisis sparked by Russia's invasion of Ukraine last year.

Europe's LNG imports are estimated at 8.56 million metric tons in August, down from 8.78 million in July and the lowest since November 2021.

If history is a guide, Europe's LNG imports are likely to pick up from the fourth quarter onwards, but the extent of the rise is likely to depend on whether the coming winter is colder than usual.

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