LONDON: A cargo of liquefied natural gas (LNG) for delivery to Asia was offered on Wednesday below the UK front-month gas price, turning over a multi-year trend of Asian prices having a premium over Europe and prompting some traders to redirect their cargoes to Europe from Asia.
Asian LNG prices usually have a premium over European gas prices, especially in winter when Asian demand jumps. But as temperatures in Asia have been unseasonably warm this winter Asian gas stocks have remained full, which has dragged prices in December and January in Asia below the winter price level in the past two years.
Wholesale front-month gas prices in Britain opened on Wednesday at around $7.25 per million cubic metres (MMbtu), rising to above $7.30 later in the day, Refinitiv Eikon price data showed.
Meanwhile in Asia, Anglo-Dutch Shell lowered its offer for March delivery in the Platts window from $7.45/MMbtu at 0759 GMT time to $7.10/MMbtu at 0826 GMT. Other buyers in the window did not go that low, however. At the time of the offer, British front-month gas price was at around $7.25/MMbtu.
The UK gas front-month price fell by the end of the trading session to $7.07 at 1630 GMT. But its premium over the Asian LNG price for some time has prompted some traders to start redirecting the delivery of LNG cargoes to northwest Europe from Asia.
For example, Swiss-based trader Vitol changed on Wednesday the destination of two LNG cargoes sourced in the United States to northwest Europe from Asia due to the discount of Asian prices compared to those in Britain, an industry source familiar with the matter said. The cargoes are for delivery in February and March.
Vitol has redirected a total of five cargoes from Asia to Europe since the start of the year with arrivals up to March.
Europe has seen an influx of U.S. cargoes this winter due to the low Asian demand and prices, with 48 cargoes delivered between October and March.
"It is truly an armada of LNG (into Europe), and the best is yet to come in March and April when the winter season is over in (Asia)," the source said.
Send-out of LNG from UK's South Hook LNG terminal has been unusually strong this week at 32-34 million cubic metres (mcm) per day, according to Refinitiv Eikon data. On Wednesday, Dragon terminal volumes went up to 3 mcm per day from zero, an indication that there may be a cargo en route from the Atlantic, Refinitiv analysts said.
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