Asian spot LNG prices oust Europe as world's No.1

MILAN: Asian spot liquefied natural gas (LNG) prices have re-established a premium over rival European benchmarks, reversing a month-long trend, as Atlantic markets sucked up more supply triggering deficits elsewhere.

The Asian spot price rose to $7.65 per million British thermal units (mmBtu) on Feb. 27, while the British front-month gas contract slumped to $7.57 per mmBtu on Monday amid an influx of planned LNG arrivals.

In early February, European prices topped Asia as the world's premium, establishing the biggest and most consistent premium in at least five years.

That drew more LNG from the world's biggest exporter Qatar into Atlantic markets, such as Europe and the Americas. It also prevented Atlantic-produced volumes from being diverted to Asia as in previous years, driving price rallies.

The Asian premium is too marginal at present to attract supply away from the Atlantic and analysts doubt whether price gains there are sustainable, following a year-long demand slump.

"We expect northeast Asian spot LNG prices to take a breather following the strong rebound last week as the (British gas) front-month contract no longer posts a premium to this market," Thomson Reuters Point Carbon LNG analyst Bjorn Inge Vik said in a report.

Vik added that Atlantic markets should continue exerting a strong pull on domestically-produced and Qatari supply, potentially providing more upward pressure on Asian prices. Companies with supply commitments in Asia have for years diverted Atlantic supply to meet those obligations.

But even with Asia's renewed premium over Europe, diversions remain unprofitable once shipping costs are factored in.

So companies may continue to seek spot cargoes in Asia-Pacific to cover their obligations in that basin, reducing supply availability as they sell Atlantic cargoes to Europe and Brazil.

"Strengthening UK prices helped trigger the rebound in Asian spot prices last week as the price differential between the Atlantic and Pacific basins caused portfolio companies to outbid Asian consumers," Vik said.