LAUNCESTON, Australia, Aug 26 (Reuters) – The spot price of liquefied natural gas (LNG) in Asia declined last week as signs emerged that seasonal demand may have peaked, and the recent five-month rally in prices is beginning to deter price-sensitive buyers.
The spot LNG price for delivery to North Asia fell to $13.80 per million British thermal units (mmBtu) in the week ending Aug. 23, marking a 2.1% drop from the previous week’s eight-month high of $14.10. This decline is the first in four weeks, though the price remains 66.3% above this year’s low of $8.30 per mmBtu, recorded in early March.
The rise in Asian LNG prices has been largely driven by strong demand from major buyers like China and Japan, as an unusually warm northern summer has increased power consumption for air-conditioning. According to data from commodity analysts Kpler, Asia’s LNG imports are on track to reach a seven-month high of 25.03 million metric tons in August, up from 23.86 million tons in July and 23.32 million tons in August last year.
China, the world’s largest LNG importer, has significantly contributed to this increase, with August arrivals estimated at 6.94 million tons—the highest since January—up from 5.91 million tons in July. While China’s rising power demand due to hot weather is notable, the bulk of its electricity is generated by coal, renewables, and nuclear power, with only a small portion supplied by LNG. Instead, China’s growing use of LNG in trucking is driving consumption, with Wood Mackenzie reporting that LNG truck sales rose from below 10% to as much as 30% of the market in the latter months of 2023.
Japan, the world’s second-largest LNG importer, is seeing demand driven by more traditional factors, such as increased air-conditioning use. Japan’s LNG imports are estimated at 5.83 million tons in August, a five-month high, up from 5.45 million tons in July. South Korea, the third-largest importer, shows a similar pattern, with August arrivals reaching 3.86 million tons, the most since April, and up from 3.16 million tons in July.
However, more price-sensitive buyers in Asia, such as India, are showing a different trend. India, the region’s fourth-largest importer, is forecasted to see August arrivals drop to 2.09 million tons, the lowest since April, and down 18% from July’s 2.56 million tons. Similarly, Thailand’s LNG imports in August fell below 1 million tons for the first time since April, with Kpler estimating arrivals at 880,000 tons, down from 1.04 million tons in July.
The higher prices appear to have curtailed imports by India and Thailand, with market sources indicating that utilities in both countries have failed to award spot tenders in recent weeks. This suggests that spot prices may need to decrease further to entice buyers in South and Southeast Asia back into the market.
Additionally, demand in North Asia may return to its usual seasonal pattern, which typically peaks in summer, usually August, before declining until October, when imports increase again to meet winter demand.
Another factor that could lead to a further easing of Asian spot LNG prices is the ongoing weakness in demand in Europe. Europe, the second-largest importing continent, is on track to import 6.25 million tons in August, the lowest monthly total in three years, down from 6.52 million tons in July and 8.58 million tons in August last year.
LNG demand in Europe is slipping as the European Union’s natural gas inventories reached 90% of target last week, 10 weeks ahead of the goal set by Gas Infrastructure Europe. Additionally, Europe’s natural gas demand may have structurally declined since the continent was forced to reduce its reliance on Russian pipeline supplies following Moscow’s February 2022 invasion of Ukraine.