RETUERS

 

Global LNG: Asian prices edge higher
on signs of pick-up in demand


Friday, 15 August 2014 16:40
Posted by Shoaib-ur-Rehman Siddiqui

 

SINGAPORE: Asian spot liquefied natural gas (LNG) prices rose for the second straight week amid signs
demand may pick up in the coming months, traders said.


Spot LNG prices for September delivery rose to just under $11 per million British thermal units (mmBtu)
this week, compared with $10.60 per mmBtu last week.


Prices edged higher after a price near $12 per mmBtu in a tender by Australia's Northwest Shelf (NWS)
project earlier this month took some traders by surprise.


Still, weak demand continued to weigh on spot prices, which remain depressed after having plunged
around 50 percent since hitting winter peaks of $20.50 per mmBtu in February.


Spot LNG contracted in July for delivery to Japan averaged $11.80 per mmBtu, down from $13.80 a
month earlier, the trade ministry said this week.


"We certainly expect an increase in demand from now on, but it won't be as pressing as last year," a
Singapore-based trading source said.


"I think there is a reluctance among buyers to show their hand in the market too early," the person said.
Several market players were still considering storing LNG on board vessels in expectation of higher
prices going into the winter months, trading sources in Asia said.


While some had leased tankers for storage purposes for three to six months, it remained unclear if they
would actually go ahead, given the significant risk, the sources said.


Unlike crude oil, storing LNG on tankers is unusual and generally seen as a risky bet, given the high costs
and the evaporation of cargoes over time.


"Based on the forward curve, it's difficult to see the economics working. But then again, I have a strong
belief that the forward curve will recover as we get into the winter," the Singapore-based source said.
Some LNG tankers were sailing at slower speeds than normal, which could play into sellers' hands if
prices rise, a source with a major shipowner said.


"Rather than going at the normal service speed, the ships go slower in hope for better prices when they
reach their destination," the person said.


Average speed for LNG vessels is 18-19.5 knots, but they can sail as slow as 12 knots, adding about one
week of traveling time on a journey from Qatar to Japan.


A pickup in spot prices will depend largely on temperatures in the main importing countries Japan, South
Korea and China going into the winter.


"While October prices may continue to reflect the well-supplied global gas market we still feel the market
could be tight if the last two months of the (fourth) quarter are cold," analysts at Energy Aspects said in a
note. LNG markets could also tighten if Russian pipeline gas flow to Europe should be disrupted due to
an armed conflict in Ukraine and a contractual dispute between Moscow and Kiev. Russia sends most of
its gas exports to Europe via Ukraine, but on previous occasions has stopped gas flows to Ukraine over
pricing disagreements - which also affected European supplies.


"If this happens, gas in European storage facilities will be drawn down, and European buyers may need to
compete with North East Asia for LNG," the analysts at Energy Aspects said.


In other news, the trading arm of Angola's LNG export project has made deep cuts to the headcount at its
London headquarters after shutting its liquefaction plant until mid-2015, two sources with knowledge of
the matter said.


The LNG export plant was shut down in April following a major pipe rupture.


Copyright Reuters, 2014


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RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT
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DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED
IN THE PRICE OF THE UNDERLYING FUTURES.