HomeNewsLNG prices may spike in winter as risks remain, Tokyo Gas exec says

LNG prices may spike in winter as risks remain, Tokyo Gas exec says

8/31/2023

(Reuters) - Prices of LNG could spike this winter even with high storage levels in Europe, a Tokyo Gas executive said, as many political and market uncertainties remain.

"There are still many uncertainties, including the situation in Russia and Ukraine, sanctions against Russia by the G7, the status of pipeline and LNG exports from Russia to Europe, the recovery trend in China's LNG demand and supply concerns," said Atsunori Takeuchi, senior general manager of the LNG Business Department.

"So the possibility of LNG price hikes still remains."

Global gas prices leapt to all-time highs last year after Russia cut its gas supply to Europe, leading the bloc to import record amounts of LNG and causing Asian spot prices <LNG-AS> to hit historic highs as well last August.

Asian LNG prices have since fallen more than 80% to $13 per million British thermal units (mmBtu) on sluggish demand and high inventories, though industrial action at Australian LNG facilities this month had given prices a boost.

While Japan's LNG demand is set to continue declining over the long term as renewable energy is increasingly introduced to the country's energy mix, the speed of decline will be "greatly affected" by trends in other fuels and innovation, Takeuchi said in emailed responses ahead of the Gastech conference in Singapore from Sept. 5-8.

It could also become more difficult for Japanese buyers to sign traditional, long-term LNG contracts, as market volatility and the switch to usage of low carbon energy sources add to the uncertainty of future demand, he added.

"From this perspective, we believe contract flexibility is more important than ever," Takeuchi said, adding that eliminating destination clauses will improve market liquidity, enable supply-demand adjustments in the event of an emergency, and contribute to supply stability.

"We will continue to pursue the elimination of destination clauses as well as the improvement in diversification and flexibility of contract terms."

Tokyo Gas is also closely monitoring the possibility of work stoppages at some Australian LNG facilities, Takeuchi said, adding, however, that Australia has been a stable supplier with a good export performance to date.

"The Australian Domestic Gas Security Mechanism (ADGSM), which imposes export restrictions in the event of gas shortages, has never been invoked, and we have had opportunities to communicate with government officials and businesses on a variety of occasions," he said.

"We will continue to request the Australian government to enhance the predictability of its policies to ensure stable LNG exports and a stable investment."

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