Asian spot liquefied natural gas (LNG) prices surged to their highest point in six months this week due to several factors including reduced demand in India, anticipated higher temperatures in northeast Asia, and a pause in production at an Australian gas facility.
Industry sources estimated that the average LNG price for July delivery into north-east Asia hit $12.60 per million British thermal units (mmBtu), reaching its peak since December 15. The price for August delivery was estimated slightly higher at $12.70/mmBtu.
Lucas Schmitt, research director on short-term LNG at Wood Mackenzie, noted that strong demand in Asia and various fundamental factors across countries, such as economic activity, hot weather, production challenges, and restocking demand, have bolstered prices and differentials.
Schmitt also mentioned expectations of a year-on-year increase in Asian summer LNG demand, albeit at a slower pace compared to recent months, with inventories for key northeast Asian markets appearing balanced.
Spot demand from India remained robust due to a continuing heatwave, although the onset of monsoon rains brought some relief and hesitancy amid high spot prices, according to Rystad Energy analyst Lu Ming Pang, who suggested a potential decrease in spot activity in India.
Despite meteorological agencies in Japan and Korea predicting above-normal temperatures for June and July, northeast Asian purchasing was primarily for trade optimization, indicating sufficient supplies for the upcoming summer season. The current price levels may prompt northeast Asian players to wait and assess developments in summer requirements.
Supply-side dynamics also influenced prices, as Chevron halted production at its Wheatstone gas facility in Australia for fuel gas system repairs. The repair work is underway and expected to conclude in the next few weeks.
This production suspension contributed to a rise in Europe gas prices this week. S&P Global Commodity Insights reported its daily northwest Europe LNG Marker (NWM) price benchmark for July deliveries at $11.151/mmBtu on June 13, slightly lower than the July gas price at the Dutch TTF hub.
European gas demand has been subdued, leading to record-high storage levels and Wood Mackenzie forecasting full storage by end-September, with additional floating storage accumulation until end-October.
Samuel Good, head of LNG pricing at Argus, noted the limitations on European injection demand and weak downstream consumption, which have impacted LNG receipts in the region. This has led to an open inter-basin arbitrage, diverting LNG away from Europe to Asia where demand remains strong despite rising spot prices.
Additionally, LNG freight rates experienced significant increases this week, with the Atlantic spot rate reaching $64,250/day and the Pacific rate climbing to $48,000/day, according to Spark Commodities analyst Qasim Afghan.