Asia LNG Market Picking Up

Signs are racking up that demand may be returning to the Asian liquefied natural gas following five months of price declines that took prices to their lowest since the Fukushima nuclear disaster over three years ago.

The slide in prices has prompted purchases from India and Southeast Asian countries like Thailand that do not have major term-supply agreements, and can take advantage of the falling commodity.

In China too, the top economic planning agency said it would raise the price of natural gas for non-residential users, allowing companies to pass on higher costs of natural gas to consumers.

Analysts said this will help incentivize LNG sales to China, the second-largest gas market in the world after the U.S., as the reform brings domestic gas prices closer to international oil-linked LNG prices.

Traders say prices have bottomed as utilities will begin looking into securing supplies for winter in a few weeks, and initial enquiries and price offers are already $1-$2 above current price levels.

Meanwhile, executives at an energy conference in Singapore said Japan’s gas demand looks largely stable as its nuclear plants remain offline and it is focusing more on gas and coal-based generation, while its use of oil for power generation is declining.

The Platts Japan/Korea Marker, a benchmark for Asian LNG prices, was at $11.025 per million British thermal units on August 15, which the pricing agency said brought a close to five consecutive months of declines.  It had dropped to under $10.5 a mBtu earlier this year.

Middle East suppliers, mainly Qatar, also cut supply, helping support price levels. Qatar is the largest LNG exporter in the world and together with Nigeria accounts for almost half of all cargo in the spot and short-term market.

“We expect any further reductions in supply from Qatar will only last until winter, when normal service will likely resume,” analysts at energy consulting firm Energy Aspects said. Traders said other suppliers in Australia are also holding back volumes for winter sales.

Traders surveyed don’t expect LNG prices to rise much due to a supply overhang and as utilities will go into winter with full tanks.

“While prices will have the seasonal rise, the question of how far they will be influenced depends on how cold Northeast Asia gets,” analysts at Energy Aspects said.

Most traders however agreed that the Ukraine crisis remains the biggest wildcard for Asian gas prices.

(blogs.wsj.com Edited by Topco)