It is not quite 2022, but the LNG market is heating up once again. While there is consensus among observers that the highs of 2022 will not return, the market appears far from balanced. September and October often serve as the precursor for global winter demand, and China has given the first feeler of what could be in store, come winters.
China’s LNG imports have gone up nearly 15 percent from last year, though still lower from the highs of 2021 when it emerged as the world’s largest importer. As economic recovery in China picks up pace after all Covid restrictions lifted, there is a growing sense in the market that China would not want to wait till winter arrives, to secure LNG cargoes beforehand.
The Chinese state-owned trading company, Uinpec has just floated a tender of over a dozen cargoes slated for winter. At this point, 12 cargoes may not sound that big a deal, given China has previously floated bigger tenders, but it does go a long way in starting the race between Asian and European buyers, once again. That is where every single cargo will be chased – and the bidding war will likely lead to more cancellations for smaller players, much like a repeat of last year.
On the supply front, strike by Australian LNG workers has added another dimension to the bull rally. Although, Europe is not a direct importer of Australian LNG, any likely disruption in Australian LNG supply would mean more Asian buyers competing for cargoes, on which European buyers have their eyes set. Flor of Russian gas remains restricted, and that is not likely to change anytime soon. It goes without saying that the severity of the winter season will have the biggest say in shaping LNG price – the runup to that point could still lead to a bull run – as big-pocketed buyers do not mind filling up the tanks in advance, even if it comes at a higher cost.
Pakistan’s ever diminishing relevance in the international LNG market means it will be lucky to secure winter cargoes outside of the state-to-state contacts. Reports have it that a private player is all set to bring in cargo next month from the spot market – which will be a first in many months. That said, at current rates, and from how the future market is shaping up, it may soon become a case of Pakistan’s affordability at those rates, and the capacity to dole out the required dollars, that become the basis of Pakistan’s continued absence from the spot market.
It does not help that the state-owned distribution networks remain at the forefront of distributing all LNG – regardless of who imported it. With T&D losses running as high as 12 percent, and with Brent now having crossed $90/bbl–it could just be too pricey an option once more.