LONDON: Asian spot liquefied natural gas (LNG) prices continued its downtrend this week on healthy inventories but are expected to rise in the short term, as buyers will need to boost stock ahead of cold winter months and as Europe faces higher price risk.
The average LNG price for November delivery into north-east Asia was $32.5 per million British thermal units (mmBtu), down $1.50, or 4.4%, from the previous week, industry sources estimated.
The average price for December delivery was estimated at $34.5/mmBtu, the sources said.
“While we’ve seen a continued decline in spot pricing, this has brought about some speculative interest from some Chinese players, while not official, it does make sense to capitalise on weakening rates,” said Toby Copson, global head of trading and advisory at consultancy Trident LNG.
He said that with the potential for weather to turn cold in Asia, Japan and Korea have taken to issuing tenders for December and January cargoes to see them through and keep current storage buffer adequate.
“Short term, I see a firming market for those months around mid to possibly high $30s. Any moves by Asia to secure will of course have an impact on what’s available for Europe so pricing will reflect that,” Copson added.
In Europe, while gas prices at the Dutch TTF hub eased recently, backed by high inventory level and strong flow of LNG, the risk of high prices remain as market players expect Russian pipeline gas flows via Ukraine to come to a halt in the coming weeks.
S&P Global Commodity Insights assessed its daily DES Northwest Europe LNG price benchmark, for cargoes delivered in November on ex-ship (DES) basis, at $20.966/mmBtu on Oct. 13, a discount of $23/mmBtu to the November gas price at the Dutch TTF hub, said Ciaran Roe, global director of LNG.
“Discounts were more range-bound this week in the low-$20s/mmBtu when freight rates continued to jump and price differences between Europe and Asia LNG deliveries started to stretch out accordingly,” Roe added.
Morgan Stanley said in a recent report that given the fact that Europe has been able to attract high volumes of LNG, prices don’t need to be as high as previously forecast; however, both Global LNG market and European gas market are expected to remain tight, suggesting prices in 2023 are “skewed higher”.
“Northwest European forward DES prices remain in a steep contango through mid-winter,” said Samuel Good, head of LNG pricing at commodity pricing agency Argus. Contango is where the futures price is higher than the spot price.
“Floating storage and slow sailing to capture the pricing time spreads continue to play a large part in this, with several laden carriers holding offshore Spain’s southwest coast this week and several more again sitting off Europe’s northwest and Mediterranean coasts,” he said.
On LNG freight, spot rates in both the Atlantic and the Pacific basins hit new record highs, with the Atlantic rate gaining $65,000 to $425,750/day and the Pacific rate rising $63,250 to 392,500/day, according to Henry Bennett, global head of pricing at Spark Commodities.