The spot price of liquefied natural gas (LNG) in Asia is usually at a seasonal low in August in what is historically the shoulder season between summer and winter peak demand.
That the price of spot cargoes is at the highest for this time of year since 2013 has been largely put down to robust demand from top importers such as China, and a determination among buyers to ensure natural gas stocks are adequate for the upcoming northern hemisphere winter.
However, while there is undoubtedly a demand pull factor behind the rising price, it’s also worth noting that supply from major exporters such as Australia, Russia and the United States has been below potential in recent months.
While some top exporters, such as Qatar, have been able to lift production, it certainly hasn’t added sufficient volumes to slake Asia’s robust demand for the super-chilled fuel.
The weekly spot price assessment ended at $15.50 per million British thermal units (mmBtu) in the seven days to Aug. 20, down from $17.05 the prior week, which was the highest since the peak of last winter’s demand period in January.
New York-traded futures based on the JKM assessment provided by S&P Global Platts finished at $16.34 per mmBtu on Monday, up from $15.66 on Aug. 20, but below the recent eight-month high of $17.99 on Aug. 18.
Spot LNG prices have been steadily climbing after the usual post-winter decline, which saw the weekly spot assessment hit a low of $5.60 per mmBtu in late February.
Demand pressures have been steady, with north Asia experiencing a warmer than usual summer, boosting power demand, while at the same time China is experiencing problems with coal supply after shutting some domestic mines for safety checks and imposing an informal ban on imports from top shipper Australia.
China is poised to overtake Japan this year as the world’s biggest LNG buyer, with imports in the first seven months rising to 45.84 million tonnes, up 24% from the same period in 2020, according to data compiled by commodity consultants Kpler.
Global imports of LNG have also been rising on a year-on-year basis, reflecting a recovery in demand as economies start to recover from the coronavirus pandemic.
Global LNG imports were 30.96 million tonnes in July, up from 28.2 million for the same month last year, and Kpler estimates August’s volumes will be 31.88 million, above the 28.1 million from the same month in 2020.
MAINTENANCE OUTAGES
But the recovery in demand is only one side of the LNG story, with supply pressures keeping the available volume of the fuel below potential.
Australia, which vies with Qatar for the title of world’s biggest LNG exporter, has seen a recovery in volumes in July and August, but this came after two weak months in May and June, when exports were the lowest since February 2019.
Australia’s August exports are expected to be 6.91 million tonnes, down from 6.98 million in July, but above the 5.72 million in June and May’s 5.73 million, according to Kpler.
Maintenance at several LNG plants is likely behind the reduction in volumes, and while some plants have returned to full output, there are at least two LNG trains scheduled to be offline for much of August and September.
The United States, ranked third in LNG exports, has also had maintenance issues, with pipelines supplying plants undergoing scheduled turnarounds, a process that is ongoing and likely to impact on exports this month and in September.
August loadings are forecast at 5.7 million tonnes, down from 6.07 million in July, but up from June’s 5.41 million, according to Kpler.
It’s worth noting that U.S. LNG exports were well above these levels earlier this year, with March’s 6.62 million tonnes being the highest Kpler has recorded.
Russia, the 4th-ranked LNG exporter, has also seen volumes cut by planned maintenance at plants, with outages at the Sakhalin facility, as well as at the Yamal plant.
Russia’s exports in August are forecast at 1.91 million tonnes, level-pegging with July’s 1.90 million, but well down on the 2.59 million in June, 2.8 million in May and 2.85 million in April, according to Kpler.
The bright spot for supply is Qatar, with Kpler forecasting August exports at a record 7.94 million tonnes, up from 6.43 million in July and 6.2 million in June.
But Qatar’s strong performance probably won’t offset the weakness at the other major exporters, leaving the market tight at a time of robust demand.
While maintenance turnarounds will eventually be completed, it still remains a question as to whether supply will rise enough to meet Asia’s winter demand, or even by enough to cap the rally in spot LNG prices.