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Asian LNG spot prices breach $38/MMBtu as supply risks exacerbate

Asian LNG spot prices breached the $38/MMBtu mark on June 16, with the latest surge in prices reflecting the impact of a Russian pipeline gas supply cut, adding to fears of further tightening supplies in a market, which is already quite volatile and is grappling with the impact of the Freeport LNG outage.

On June 15, Russia’s Gazprom said that flows of natural gas through the Nord Stream pipeline to Germany, would be limited to a maximum of 67 million cu m/d due to maintenance issues, following a 15% decrease natural gas supply to Italy.

“Impact of Freeport is not as large as Russia cutting gas flows,” a China-based trader said.

The Freeport facility has been offline since a fire June 8, backing up about 2 Bcf/d of feedgas into the Gulf Coast gas market.

The outage was initially to last at least three weeks but Freeport LNG announced June 14 that the facility would remain offline for much longer than previously announced, sending natural gas and LNG prices soaring. Return to full plant operations is not expected until late 2022, the operator said.

The Platts JKM for August, the new front month, was assessed at $38.58/MMBtu June 16, S&P Global Commodity Insights data showed, the highest since March 9.

Trading activity in the Asia LNG market rose as traders and end-users dipped back into the spot market to secure cargoes amid increasing global supply uncertainty as the Gazprom reduction of gas flow into Europe spooked an already fractured market due to the Freeport outage.

During the Market on Close Process, Vitol reported an offer for a July 29-31 DES JKTC, with quantity of 3.2-3.3 TBtu, at TTF July Any Day minus $1.50/MMBtu. The TTF July Any Day was assessed at $39.875/MMBtu at the Asian close June 16.

Ripple-effects in Asia
The disruption in gas supplies to Europe will likely be dragged out leading to an increase demand for LNG in the Atlantic, worsening the supply crunch with its ripple effects to spillover to Asian markets, sources told S&P Global Commodity Insights.

The outages in the Atlantic basin certainly have a knock-on impact on Asia, despite a lack of significant volumes flowing from the Atlantic to the Pacific.

Less gas to Europe means they will have to try to balance on more LNG, which means prices have to rise to a level which slows spot purchasing in Asia.

However, there was already relatively small levels of spot purchases from Asian end-users, which partially explains the strong price support for JKM, as the market struggles to find a price level which will shut off enough demand to help satiate European demand, especially given the size of the volumes that need to be replaced, which outpace spot demand in Asia.

According to the latest Platts Analytics June commodities brief, in Asia Pacific the demand story is improving, although still trailing last-year levels, with month-to-date imports averaging 975 mcm/d, a 62 mcm/d increase over April, supported by higher temperatures triggering spot LNG demand and seasonally stronger contractual nominations.
Meanwhile, the surge in LNG prices recently is expected to prompt some Chinese LNG importers to divert some LNG cargoes overseas again, a trade source in south China said.
This comes as domestic demand in China is still muted due to the impact of COVID-19 related lockdowns amid projections of a weaker macroeconomic growth in the country.

“We project real GDP growth to slow sharply to 4.3% in 2022 – 0.8 percentage points lower than projected in the December China Economic Update,” The World Bank Group said in its China Economic Update for June 2022.
Source: Platts

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