Asia LNG prices hit 7-week high as demand rises and Iran conflict stirs risk
- Japanese buyers face higher costs due to crude-linked long-term LNG contracts
- Early summer heat boosts northeast Asia LNG demand
- Europe's slow gas storage injections may force competition with Asia for U.S. LNG
Asia spot liquefied natural gas rose this week to its highest level in seven weeks as stronger early summer demand and supply risks tightened availability and geopolitical uncertainty around the Iran conflict keeps markets on edge.
The average LNG price for July delivery into north-east Asia LNG-AS was estimated at $18.80 per million British thermal units (MMBtu), its highest week since early April and up from $17.80/MMBtu last week, industry sources said.
"The spot market is still pricing in volatility, which is understandable, but there is a bigger issue unfolding: LTC JCC (long-term contracts for Japanese customers cleared against crude) are priced against a 3‑month lagged average of crude," said Toby Copson, managing partner at Davenport Energy.
"The Brent slope is now based on $101/barrel versus the non-conflict premium, meaning the end user gets this price passed on," he added.
Most Asian LNG is sold under long-term contracts indexed to crude oil, meaning prices move in line with oil O/R.
Asian buying continues to be supported by early summer cooling demand, with higher than average temperatures in north-east Asia, as well as the continued closure of the strait of Hormuz, potential strike action at Australian export terminals and Malaysian exports falling slightly, said Martin Senior, head of LNG pricing at Argus.
In Europe, gas prices at the Dutch TTF hub were around €48 per megawatt hour, having risen to over €50 earlier this week for the first time since early April.
"Concerns are growing over the slow rate of injections into Europe's storage. Though there is still time to refill ahead of winter, the current rate of injections would need to speed up to match normal levels. That would require Europe to start competing harder against Asia to draw back U.S. cargoes," said Alex Froley, senior LNG analyst at ICIS.
"If Europe’s storage isn’t filled back to normal levels, then in the event of cold weather next winter, prices could go much higher as Europe and Asia compete for supplies during peak winter demand, even if the Strait of Hormuz has re-opened by then," Froley added.
S&P Global Energy assessed its daily North-west Europe LNG Marker price benchmark for cargoes delivered in July on an ex-ship (DES) basis at $16.728/MMBtu on May 21, a $0.140/MMBtu discount to the price at the TTF hub.
Argus assessed the price at $16.870/MMBtu, while Spark Commodities assessed the price at $16.577/MMBtu.
Investment funds reverted to buying long TTF exposure once more last week, as the front month hit €50/MWh, but the scale was muted compared to previous periods, said Seb Kennedy, independent analyst at Energy Flux News.
"This reflects caution among funds, which have been burned by sudden price pullbacks during the U.S.-Iran war, and the fact that they are already sitting on a very large net long position," he added.
Global LNG freight rose this week, with Atlantic rates at $99,750/day and Pacific rates at $64,000/day, said Spark Commodities analyst Qasim Afghan.
The U.S. front-month arbitrage to north-east Asia via the Cape of Good Hope and Panama are both strongly pointing to Asia, he added.
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