LAUNCESTON: The worst fears of Asia's liquefied natural gas (LNG) markets for a shortage over winter failed to materialise, but the subsequent feeling of comfort may be about to come to an end.
Much of the focus of the global natural gas market in recent weeks has been on the rising tensions between Russia and Ukraine, and the potential impact on Russian supplies to Europe in the event of a serious escalation.
This has served to keep prices in Europe well supported, as well as drawing more LNG cargoes to the continent, especially from swing supplier the United States.
Asia has so far been relatively unfazed by the Ukraine-Russia situation, with the spot price of cargoes for delivery to north Asia dropping 52.4% from a record $48.30 per million British thermal units (mmBtu) in the week to Dec. 23 to $23 by Jan. 21.
However, last week the index jumped 17.4% to $27 per mmBtu, while New York-traded futures linked to the benchmark S&P Global Platts JKM assessment ended at $26.81 on Jan. 28, up 30.6% from their recent low of $20.53 on Jan. 20.
The immediate catalyst for the move higher in spot prices would appear to be colder weather in Japan, which vies with China for the title of the world's biggest LNG importer.
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Refinitiv weather forecasts predict that the colder weather will spread in coming weeks over much of north Asia, which in addition to Japan and China also includes the world's number three importer South Korea.
A further worrying signal is that Japan has been drawing down on its inventories in recent weeks, with Argus reporting that the country's main utilities held 1.76 million tonnes of LNG stocks as of Jan. 23, down 12.4% from a week earlier, and well below the 2.42 million at the end of November.
Changing flows
It's also worth noting that less LNG is expected to have arrived in Asia in January than in the previous month, with Refinitiv estimating 23.95 million tonnes will be discharged this month, down from 25.26 million in December.
At the same time, the volume of LNG arriving in Europe is surging, with Refinitiv estimating 11.76 million tonnes in January, up from 8.99 million in December and 7.72 million in November.
Commodity consultants Kpler forecast Europe's LNG imports at a record high 10.39 million tonnes in January, up from 6.97 million in December and 6.21 million in November.
The influx of LNG into Europe has been propelled by shipments from the United States, with January imports forecast at 5.49 million tonnes, a record high and about double the typical volumes of US LNG flowing to the continent.
The United States is rising to challenge Qatar and Australia as the world's biggest supplier of the super-chilled fuel, and it also enjoys more flexibility given its producers tend to sell more cargoes by spot trades and short-term contracts, while its rivals rely more on long-term contracts, some with destination restrictions.
It's likely that if Asia wants to up its imports of spot LNG, the price will have to rise to make it worthwhile for US exporters to send their cargoes to the region rather than to Europe.
With the Russia-Ukraine situation keeping Europe's natural gas prices well bid, this means Asia's spot LNG price may have further upside in order to attract fresh cargoes.