Asian LNG prices hit record highs amid supply snags, cold snap

Asian LNG (liquefied natural gas) prices have hit record highs due to supply glitches, transportation bottlenecks and soaring demand for heating due to a cold snap, according to S&P Global Platts data.

Benchmark LNG prices, the S&P Global Platts JKM, was assessed at $32.494/MMBtu on Jan 12, which is the highest since it was launched in early 2009. 

Prices had risen by as much as 31% on Jan 11 from the previous day, which is the sharpest rise ever on a single day.

The surge in prices have come as a third cold snap in parts of China this winter — around Beijing, Tianjin and Hebei — have caused trucked LNG prices in the country to rise to around $28/MMBtu.

China’s northern provinces faced multiple cold waves since December causing energy shortages and forcing utilities to deploy all energy sources available. In the first week of January, Beijing recorded the coldest temperature since 1966 and other provinces hit their lowest mercury level on record.

China’s state council has therefore redoubled efforts to shore up coal, electricity and natural gas supplies for residential heating to combat this cold wave.

Simultaneously, icy conditions in North Asian ports and movement restrictions in the Panama Canal have hit the availability of spot LNG as the waiting time for Asia-bound tankers from the US Gulf Coast has climbed to as much as 13 days. 

Supply constraints

The long waiting time have resulted in shipping rates of LNG rising to multi-year highs of $300,000/day in January.

The supply shortage has been aggravated by a slump in US shale gas production that is likely to persist amid the ongoing pandemic.

The gas shortage have hit other major energy consumers in Asia as well.
Japanese utilities have cut back on surplus electricity sales on its power exchanges and resorted to burning more coal and fuel oil in addition to procuring more spot LNG despite high prices. The energy demand has been aggravated by winter storms that have hit solar power.

Last week, Japan announced a month-long state of emergency in Tokyo and three adjacent prefectures, which has boosted residential energy demand. This situation is expected to expand to more prefectures, covering over half of the entire population.

Some regions in Japan have seen a 20% increase in power demand in the first week of this year as the cold conditions have been further amplified by the need to keep windows open for circulation amid the covid-19 spread.

However, the power situation is expected to improve from next month as three nuclear plants are expected to be back in operation by mid-February.
In nearby South Korea, electricity demand jumped to a wintertime-high, which  has put state-run Korea Power Exchange on a high alert.

Temperatures in Seoul dropped to minus 18.6 degree Celsius in early January, which is the lowest in 35 years.

India’s neighbour Pakistan has also been scorched by the sky-high LNG prices. Following a major outage in the country’s national grid on Jan 9 that shutdown power plants, Pakistan has received some of the highest price offers for LNG on record.

Biman Mukherji is a columnist and consulting editor at Indoasiancommodities.com. He has worked for international news organisations such as Reuters, The Wall Street Journal as well as for newspapers like The Times of India. He can be reached at biman.mukherji@indoasiancommodities.in

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