Asian spot LNG prices poised to hit new high

: Natural gas
21/10/04

Asian spot LNG prices are poised to surpass the all-time high recorded early this year, as firmer buying activity from within and outside the region shows little sign of abating.

Bangladesh's state-controlled Rupantarita Prakritik Gas (RPGCL) possibly paid late last week around $36-36.50/mn Btu to trading firm Gunvor for a 24-25 October delivery, which is the highest priced cargo transaction since mid-January last year.

New records are expected to be set in the coming weeks and months, as buying activity from within and outside Asia gathers pace to extend current price gains.

The front half-month ANEA price, the Argus assessment for spot LNG deliveries to northeast Asia, was assessed at $34.685/mn Btu for first-half November deliveries on 1 October, up by $15.80/mn Btu, or 84pc, from $18.885/mn Btu for first-half October deliveries on 1 September and nearly sevenfold the $5.080/mn Btu assessed exactly a year earlier. It is also $5.035/mn Btu shy of the current high at $39.720/mn Btu for first-half February deliveries on 13 January.

"Winter isn't even here yet and this is what's happening… wait till buyers start looking for January and February cargoes," a trader at a European trading firm said.

Argus is currently assessing prices for deliveries from first-half November to second-half December, in line with general buying interest. The northern hemisphere winter season typically runs from the end of October to the following March, with peak demand falling in January and February.

RPGCL's deal level was surpassed by Japanese utility Tohoku Electric's purchase of a 2 February delivery at $39.30-40/mn Btu from TotalEnergies on 13 January this year. An unseasonably cold winter and a spate of global supply disruptions pushed Asian spot LNG prices to unprecedented levels at the beginning of this year.

Asian LNG buyers, particularly from Japan, had sought to avoid a recurrence of last winter's scramble for cargoes and stave off a price rally this year by purchasing volumes much earlier in advance. Some even had to sell surplus cargoes resulting from milder than expected demand from the residential and industrial sectors in August.

Demand picks up

But demand from other regions has been particularly robust, with key buyers in China and Taiwan enquiring for, and acquiring, a large number of cargoes.

China's Unipec, the trading arm of state-controlled Sinopec, bought around 13 cargoes for deliveries across November to March next year in a tender that closed 24 September. It may still be seeking more supplies for November-January deliveries, market participants said. Fellow Chinese state-controlled buyer CNOOC has been enquiring for an unspecified number of cargoes to be delivered across winter as well.

Buying activity from China is expected to gather pace especially following the end of the week-long national day holidays on 7 October, with the government pushing state-controlled buyers to secure supplies for this winter after several of the country's regions experienced power cuts because of a supply crunch. China's commitment to adhere to the World Health Organisation's air quality standards during the Winter Olympics that will be held in Beijing across 4-20 February next year also means that the country will need more LNG as it cuts its coal consumption.

Taiwan's state-owned CPC is probably on the lookout for more winter supplies following its purchase of a total of at least 17 cargoes for October-February 2022 through two separate tenders that closed on 27 August and 23 September.

Gains in Asian spot LNG prices have also been driven by an unprecedented rally in European gas hub prices, with the severe winter last year having drained stocks in many European countries including Germany and the Netherlands and leaving inventories significantly lower than usual.

Gas storage inventories in Europe were 75.1pc full at 831TWh (79.4bn m³) on 1 October, lower than the 94.7pc and 1,057.1TWh recorded a year earlier and the average 89.6pc and 984.6TWh held by inventories in the same period over 2016-20.

Earlier expectations that the 55bn m³/yr Nord Stream 2 pipeline from Russia to Germany could quell supply shortages were dashed when German energy regulator Bnetza said it had until early May next year at the latest to decide on the project developer's application to act as the line's operator, before which the line cannot start up and start flows.

This, combined with firmer domestic demand in Russia limiting its gas flows to Europe, renewed concerns about the availability of gas supplies during the region's peak demand season.

The rise in carbon emissions allowance prices in past months also meant that coal-fired power plants have had to give way to gas-fired generation, leading to a significant call on gas for power generation.

The month-ahead Dutch TTF natural gas price surpassed the previous high of $11.632/mn Btu on 3 December 2013 at $11.691/mn Btu on 29 June this year. It has shown no sign of abating in subsequent months, rising by as much as $19.483/mn Btu, or 167pc, since then to a record high of $31.174/mn Btu on 1 October.

Pakistan and Bangladesh have also been prolific with their LNG purchases, issuing more tenders than usual to meet higher domestic power demand. Buyers from South America have also been seeking cargoes in the spot market. Argentina on 30 September issued a tender to buy four cargoes for deliveries over October-December, following Turkish state-owned Botas' tender that closed on 27 September to buy 20 cargoes to be delivered from October to February next year.

Weather to determine rally

How severe this winter turns out will be key in determining the length and extent of the continuing price rally. A colder than expected winter means several Asian buyers will have to secure additional supplies to meet extra heating requirements, increasing the competition for a limited pool of supplies.

The Japan Meteorological Agency's latest three-month forecast published on 24 September predicted a 40pc probability of below-normal temperatures from December to February across most of the country, leading to expectations that this winter will generally be a cold one for the country and its northeast Asian neighbours. Only Japan's Hokkaido and Tohoku regions are forecast to have a 30pc probability of colder than usual weather in the same period.

"I don't have additional spot requirements in the fourth quarter. But if it will be very cold, I have to buy [cargoes for delivery in the] middle of winter," a Japanese buyer said, referring to supplies for delivery in January and February.

Oil-linked reversal

Sharp gains in Asian spot LNG prices have now put them at a substantial premium to Brent crude oil-linked prices, a reversal from at least the last two years when they were at a discount to term prices.

Oil-linked term contract prices for November deliveries indexed at around 14.5pc to Brent based on a three-month crude average (301) contract at $10.540/mn Btu on 30 September, $22.025-22.180/mn Btu lower than the ANEA price for first-half November second-half November at $32.565/mn Btu and $32.720/mn Btu respectively on the same day. The slope of many historical Asia-Pacific long-term contracts was pegged at around 14.5pc to Brent. But there were several contracts negotiated and agreed at a lower slope of 10-11pc in the past two years on the back of low spot prices.

"Some buyers wanted more spot when prices were at all-time lows last year, but now they realise how volatile spot prices will be and want to rely on term again," a Japanese trader said.

This was echoed by an Indian trader, who expects that "there will be a rush to sign HH [Henry Hub]/Brent-linked deals" when spot prices ease. "The last two years we saw a huge swing towards spot sourcing. People here are already talking about long-term supplies once the price softens," he said.

The front half-month ANEA price slumped to a record low of $1.675/mn Btu on 30 April last year as the Covid-19 pandemic exacerbated already weak demand following a supply glut, with oil-linked term prices then at least five times higher than spot levels.

Price hike spurs fuel switching

The latest rally in spot LNG prices has pushed several Asian buyers to turn to cheaper alternative fuels to meet their power requirements.

At least two Japanese power utilities have boosted operating rates at their oil-fired power units to limit gas-fired power generation and slow the draw on LNG inventories.

A few buyers in India have also switched from gas as feedstock to heavy fuel oil or low-sulphur heavy stock, a residual fuel processed from crude, to avoid buying costly spot LNG, market participants said.

By Joey Chua

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24/12/23

Viewpoint: US tax fight next year crucial for 45Z

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By Cole Martin Tax credit changes 40A Blenders Tax Credit 45Z Producers Tax Credit $1/USG Up to $1/USG for road fuels and up to $1.75/USG for aviation fuels depending on carbon intensity For domestic fuel blenders For domestic fuel producers Imported fuel eligible Imported fuel not eligible Exclusively for biomass-based diesel Fuels that produce no more than 50kg CO2e/mmBTU are eligible Feedstock-agnostic Carbon intensity scoring incentivizes waste over crop feedstocks Co-processed fuels ineligible Co-processed fuels ineligible Administratively simple Requires federal guidance on how to calculate carbon intensities for different feedstocks and fuel pathways Expiring after 2024 Lasts from 2025 through 2027 Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Japan’s Chugoku restarts Shimane nuclear reactor early

24/12/23

Japan’s Chugoku restarts Shimane nuclear reactor early

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US House votes to avert government shutdown

24/12/20

US House votes to avert government shutdown

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US government agencies set to shut down

24/12/20

US government agencies set to shut down

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Investment funds cut net long positions on Ice TTF

24/12/20

Investment funds cut net long positions on Ice TTF

London, 20 December (Argus) — Investment funds have cut their TTF gas net long positions on the Intercontinental Exchange (Ice) by nearly 50TWh from their historic peak at the end of November, while commercial undertakings' positions have moved strongly in the opposite direction. Investment funds' net long position had climbed steadily from 202TWh in the week ending 18 October to an all-time high of nearly 294TWh by 29 November. But in the two weeks since that point, their net position has dropped again by 48TWh ( see graph ), leaving their 246TWh net long position at the smallest since 8 November, according to Ice's latest commitments of traders report. However, only around 30pc of the decrease in the net long position came from closing long positions, with the large majority coming from opening up more shorts. Total long contracts were cut to 445TWh on 13 December from 461TWh on 29 November, but short contracts jumped to 200TWh from 167TWh in the same period. Such a large trimming of the net long position contributed to falling prices over the period — the benchmark Argus TTF front-month price fell from €48.45/MWh at the start of the month to €41.10/MWh at the close on 13 December. The front-quarter, front-season and front-year contracts all fell by roughly the same amount, as the entire price curve shifted down. While investment funds reduced their net long position over these two weeks, commercial undertakings — predominantly utilities — moved in the opposite direction, with their net short position falling to 37TWh from 102TWh. This was driven entirely by opening up more long contracts, which jumped to 947TWh from 877TWh, while shorts increased by just 5TWh between 29 November and 13 December to 984TWh. Commercial undertakings' total open interest therefore soared to 1.93PWh by the end of last week, triple the volume of investment funds' total open interest. Investment funds have in the past two weeks bought "risk reduction" contracts — generally used for hedging purposes — for the first time since May 2021. This suggests that some investment funds hold physical positions that they want to hedge their exposure to, although the volumes are small at around 300GWh for both shorts and longs. While utilities' positions in the futures markets are mostly risk-reducing to offset the risk held in physical positions, investment funds' positions are typically not risk-reducing because they are bets on the direction of prices. That said, utilities and other commercial undertakings such as large industrial buyers have increasingly set up trading desks that compete with hedge funds to capitalise on price trends and volatility in recent years. Risk reduction contracts account for around 69pc of commercial undertakings' open interest, meaning the other 31pc of contracts — amounting to 600TWh — were more speculative in nature. This 600TWh of speculative total open interest is only just below the 645TWh held by investment funds. By Brendan A'Hearn ICE TTF net positions TWh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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