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Early-winter LNG spot demand outlook cautious despite 4-year high prices: sources

Nuclear restarts in Japan and early Chinese procurement of winter-strip or short-term LNG volumes could temper northeast Asia end-user spot demand at the start of the winter season, according to market participants.

Spot prices surged in the third quarter of this year on persistent supply concerns, such as the Sakhalin LNG single-train outage in August, as well as robust northeast Asian demand due to a summer heatwave.

The start-up delays for Australian LNG projects Ichthys and Prelude also contributed to perceptions of supply tightness during the winter, sources said.

But reasonable cargo availability, as well as less bullish expectations of early-winter demand, have restrained the recent price rally heading into the winter season.

The Platts JKM for cargoes to be delivered in November was assessed Tuesday at $11.764/MMBtu DES northeast Asia. This was down from $12.069/MMBtu Monday, which was the highest price since November 4, 2014.

Oil-slope equivalent levels for spot LNG prices continued to be significantly higher than multi-year seasonal averages — exerting downward pressure on November pricing, sources said.

Market participants also said there was growing caution that Chinese spot demand might not reach the lofty heights of last winter.

Fearing a repeat of last year’s winter gas shortage, Chinese importers have raced to sign winter-strip deals or winter-heavy long-term contracts.

For example, PetroChina signed a 22-year deal with Qatargas to purchase 3.4 million mt/year starting this month.

Sources also did not foresee a high likelihood of severely reduced gas-flows from the Central Asia pipeline into the country this winter as was the situation last year.

“Last winter, spot LNG demand rose significantly due to severe pipeline import shortage,” a Chinese end-user said. “This year’s pipe imports are expected to be more stable of course as ensured by the government.”

Furthermore, all nine nuclear reactors that have restarted in Japan since the 2011 Fukushima I accident will likely be in operation during the peak winter heating demand period from December to February.

This could eliminate the need for as many as six cargoes of LNG for the region’s top importer every month, according to S&P Global Platts Analytics.

About 9.13 GW of nuclear capacity will be online in Japan in that period, which is an increase from 3.2 GW in the same period last winter, according to Platts Analytics.
Source: Platts

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