LONDON: Asian spot liquefied natural gas (LNG) prices continued to rise this week amid stronger demand on the back of a blistering heatwave in Japan and a return of competition with Europe which is gearing up for possible disruption of Russian gas.
The average LNG price for August delivery into north-east Asia was estimated at $39 per million British thermal units (mmBtu), up $2 or 5.4% from the previous week, industry sources said.
"Demand from Japan on the back of a heatwave was evident as some utilities purchased prompt cargoes this week," said Ciaran Roe, global director of LNG at S&P Global Commodity Insights.
"In addition, as concerns around the length of the Freeport LNG outage mounted, the JKM (Japan Korea Marker) forward curve moved into a contango structure for September/October, having previously been in backwardation," he added.
Contango is where a futures price is higher than the spot price, while backwardation is the exact opposite, with the forward price of the futures contract lower than the spot price.
S&P Global Commodity Insights assessed LNG prices for a delivered ex-ship (DES) basis into north-west Europe at $38.425/mmBtu on June 30, at a discount of $5.775/mmBtu to August prices at the Dutch gas hub, said Ciaran Roe, global director of LNG.
In June, for the first time in history, U.S. LNG contributed more gas supply to Europe than pipeline gas from Russia.
The European Union imported 21.36 million tonnes in the first half of 2022, up from 8.21 million tonnes in the same period a year ago, according to Robert Songer, LNG analyst at data intelligence firm ICIS.
Traders are weighing the risks of further supply reductions on Nord Stream 1, which is due for annual maintenance in July, as any further cuts or extended maintenance would to have huge implications on the European gas balance.
"The stage is set for a global tug-of-war between Europe and Asia for spot LNG cargoes, which is likely to see Asia spot LNG prices return to a premium over European gas prices," Edmund Siau, LNG analyst at consultancy FGE said.
Another bullish factor for LNG prices is that Russia announced on Friday a decree to take full control of the Sakhalin-2 gas and oil project in Russia's far east, a move that could force out Shell and Japanese investors.
The order creates a new firm to take over all rights and obligations of Sakhalin Energy Investment Co, in which Shell and Japanese trading companies Mitsui and Mitsubishi hold just under 50%.
Some 61% of Sakhalin exports went to Japan in the first half of this year, according to Refinitiv Eikon data.
Japanese Prime Minister Fumio Kishida said Russia's decision would not immediately stop LNG imports from the development. The same message was echoed by the Kremlin that Russia sees no grounds for LNG supplies to stop.
However, the heightened political risk may help maintain, and probably increase, the risk premium of LNG prices, according to Tamir Druz, managing director at consultancy Capra Energy.
LNG freight spot rates moved lower as vessel availability increased following the Freeport shutdown, with Atlantic rates estimated by Spark commodities at $50,500 per day and Pacific rates at $61,000 per day on Friday.