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    Demand, Shipping Pains Push Asian LNG Prices Higher


But shipping constraints threaten near term US prices

by: Dale Lunan

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Natural Gas & LNG News, World, Americas, Daily Digest, Liquefied Natural Gas (LNG), Premium, Editorial, Security of Supply, News By Country, United States

Demand, Shipping Pains Push Asian LNG Prices Higher

Strong demand in Asia and logistical constraints have pushed international LNG prices to highs not seen in two years, RBN Energy said in a December 30 blog post, with the key Japan-Korea Marker (JKM) reaching $11.55/mn Btu for prompt contracts on December 28.

The higher prices, RBN analyst Sheetal Nasta wrote, are a reflection of strong winter demand, especially in northern Asia, and supply constraints dating back to last summer, when US cargo cancellations kept more than 600bn ft3 out of the global LNG market.

Since then, scheduled maintenance at Dominion Energy’s Cove Point terminal in the US, Chevron’s troubles at its Gorgon facility in Australia and the late September fire at Equinor’s Hammerfest export terminal in Norway have combined to keep a lid on available supply.

But while the demand recovery and tighter supply have led to some of the highest transport spreads from the US Gulf Coast since 2018 – the Henry Hub-JKM spread has averaged more than $6/mn Btu in December, and in recent days has reached as high as $9/mn Btu – all is not as “unfettered or rosy” as market participants may have hoped, Nasta writes.

“One unintended – and counterintuitive – consequence of the stronger market: more cargo cancellations,” she says. “While economics-driven cancellations are now obsolete with the rebound in destination prices, the surge in demand, particularly in Asia, has led to market tightening, not due to an inherent supply shortage per se, but a shortage in the ability to get the supply to where it’s needed – in other words, a vessel shortage.”

Demand for vessels and their day rates typically rise during the high-demand winter period, and the increased use of tankers for floating storage and spot cargoes this winter has depleted the fleet more than usual.

But one of the factors exacerbating the vessel shortage perhaps more than any other is the ongoing congestion at the Panama Canal, which has led to longer wait times for transit or decisions to take the longer route around the Cape of Good Hope, with both options leading to longer voyage times – and soaring vessel rates.

“Vessel rates are soaring in the six figures per day compared with $40k-60k/d earlier this year,” Nasta writes. “What’s more, even if you’re willing to shell out that kind of money, there are reportedly few or no vessels to be had, all of which just serves to amplify the supply shortage in Asian markets.”

Given the uncertain availability of vessels, she concludes, some offtakers are already cancelling cargoes for January and February, despite robust demand. The deadline for February notifications passed on December 20, and RBN has heard that as many as 10 cargoes have already been cancelled for February 2021 liftings from US terminals, Nasta writes, not a good sign for near-term Henry Hub gas prices.

“While it’s possible these cancellations may be offset by spot cargoes as vessels become available, the re-emergence of cancellations doesn’t bode well for the domestic gas market, which was also dealt a blow in recent days by a forecast of substantially higher temperatures for January.”