Weak shoulder season, strong supply push Asian LNG prices below $10/MMBtu

Persistently weak demand is seen continuing in the LNG spot market, where consumers have ample supply, competing fuels prove to be cheaper and an absence of significant supply shocks have dragged Asian LNG prices to the lowest level in two years.

Platts assessed the JKM for June at $9.882/MMBtu May 5, the lowest level in two years, S&P Global Commodity Insights data showed.

China's spot demand for LNG has been below expectations to date in 2023 as it continues to utilize coal and renewable energy to meet its requirements.

Downstream truck LNG prices, which provide a significant source of demand for imported LNG, have also been lower than spot LNG prices.

The average ex-terminal trucked LNG price was down Yuan 200-300/mt in the week to May 5, dropping below Yuan 4,000/mt ($578.39/mt) in Sichuan and Chongqing provinces.

However, with the JKM price below $10/MMBtu, market participants expect Chinese spot demand to firm to take advantage of softer prices.

A trader based in the Middle East said there was currently no momentum in Chinese buying, but sooner or later it would come. There was some buying by Chinese importers in the week to May 5, but they seemed to be securing surplus supplies, the trader said.

"Even though $10/MMbtu is breakeven, since storage [costs] are high, there is not a lot of incentive," a Singapore-based trader said. Guangdong is typically less price-sensitive and an increase in the province's LNG demand would signal a firm move, the trader said.

"I think overall industrial demand is not back yet, so gas storage remains ample," the source added.

Inventories in Japan and South Korea were sufficient amid stable weather conditions and weak domestic demand.

Even though Japan's Kansai Electric has delayed the operation of its 826-MW nuclear reactors Takahama-1 and 2 beyond June 3 and July 15, sufficient inventory in the country meant LNG demand remains muted. In fact, Kansai Electric and Kyushu Electric Power sold one cargo each for June delivery in April, according to market sources.

While India was a bright spot for LNG, its demand is incrementally weak after several buy tenders were concluded, sources said.

The West India Marker was assessed at $9.638/MMBtu for June on May 5, S&P Global data showed.

Market participants said an abundance of domestic gas and regasified LNG in India meant LNG prices would have to be very competitive to spur demand.

GAIL is scheduled to receive four cargoes in May from SEFE as part of a term contract. GAIL also awarded a swap tender in the week ending May 5 in which one cargo to India was scheduled each month in July, August and September.

On May 4, GAIL tendered RLNG of up to 55 million cu m to be supplied over May 5-15 because of a likely incoming cargo, sources said.

In April, Petronet awarded a mid-June cargo tender and Indian Oil Corporation Ltd awarded two cargoes for delivery in May-June and end June-early August.

Domestic gas market participants are also eyeing the Reliance-BP auction on May 19 that seeks bids for up to 6 million standard cu m/day for a tenure of three to five years. The auction was announced earlier than expected given that Reliance-BP had recently concluded a similar auction on April 12.

The forward curve for JKM suggests that weakness in LNG prices will continue to sustain, with the August derivative price assessed at $11.125/MMbtu and September derivative at $12.425/MMBtu on May 5 at Singapore close.

Surplus in Europe

Asian LNG prices are also under pressure as Europe's pull on summer LNG flows has been muted, reducing competition for Atlantic Basin LNG.

Gas supply to Europe moved higher in April compared to March, with above-average LNG arrivals, higher Algerian pipeline supply and an uptick in Russian pipeline delivery via Turkstream, according to S&P Global Commodity Insights' May 6 commodity brief.

"As a result, injections to European gas storage exceeded our start-of-the-month expectations. In turn, storage fullness rose from 55.7% end-March to 59.6% end-April, remaining substantially above 5-year average of 39%," SPGCI said.

Along with higher summer inventories, strong availability of LNG cargoes is expected to maintain bearish pressure on European gas prices, with support coming from storage refill and power sector switching from coal to gas, SPGCI said, adding that "the bearish pressure could become more difficult to mitigate in late summer as storage space becomes less available in Europe."

This could continue to cap LNG prices in Asia.

SPGCI said a modest demand response from South and Southeast Asian buyers has not outweighed fundamental changes to the Northeast Asia balance, which is roughly 44 MMcm/d looser than last year and 55 MMcm/d looser than the five-year average and has pulled the JKM derivative below $15/MMBtu through the balance of the year.

Supply from the US is also weighing on prices, with the Freeport LNG terminal back to regular exports in April.

SPGCI expects total North American LNG exports will reach 135.8 Bcm in 2023, a 17.2 Bcm or 14% increase over last year, assuming normal maintenance cycles resume. North American LNG exports averaged 295 MMcm/d in 2022, the highest annual output to date, its data showed.