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Liquefied natural gas prices have climbed to their highest level ever as a severe cold spell in Asia stimulates demand at a time when super-cooled fuel shipments are hard to come by.
Spot prices in Asia hit a record high of $ 20.705 per million British thermal units on Thursday, according to an assessment of daily trading by S&P Global Platts, as traders and buyers in South Korea, Japan and China was scrambling to secure their supplies.
This is more than four times the prices negotiated in September. The market is generally stronger in winter as demand increases, but the size of the jump has still surprised some market participants.
“What started the rally was colder-than-normal weather in Asia and Europe and a complete lack of availability of LNG carriers as supply outages really tightened the market,” said Samer Mosis of S&P Global Platts.
An unusually large number of cargoes are heading to Asia from the United States, reducing the availability of LNG carriers. Delays at the Panama Canal also added at least two weeks to round-trip travel from the US Gulf of Mexico coast, while supplies from Qatar and Malaysia were lower.
Demand for electricity and heat in Japan, one of the world’s largest importers of LNG, is even higher than during a normal cold snap due to a campaign to open windows to help fight the spread of coronavirus indoors.
“These spot prices may not last beyond March,” Mosis added. “But it was a reminder that securing additional one-off cargo in the dead of winter can quickly become very costly and is not always straightforward, especially if freight is not available.
LNG is one of the fastest growing fuel sources in the world, as major Asian economies see it as a way to reduce their reliance on the more polluting coal at a time when climate change has become a major issue. political priority.
South Korea’s utility Kogas has said that if it buys 70% of its LNG supply through long-term contracts, it must access the rest of the spot market regardless of the price.
“We still have enough stocks. But the demand for LNG is set to increase further, given the government policy to reduce coal-fired energy, ”Kogas said. “If we are facing supply shortages due to the cold winter, we will have to buy more in the spot market to meet demand, even if the prices are high.”
The price rally provided some near-term relief to US LNG suppliers. But the market is still expected to be in surplus around the middle of this decade as LNG projects ordered before the pandemic come on stream.
Traders said growing demand and the resumption of the coronavirus pandemic means prices are expected to rise on average over the next two to four years until these projects take off.
For the UK, high prices will add to pressures on the country’s energy system, which depended on LNG imports to cover more than a quarter of gas supplies last winter, at a time when excess supplies were dumped. in Europe, where imports and storage are abundant. capacity.
Additional reporting by Nathalie Thomas in Edinburgh and Gregory Meyer in New York
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