LNG price at new record as Asia, Europe cold snap bites
https://www.theaustralian.com.au/business/lng-price-at-new-record-as-asia-europe-cold-snap-bites/news-story/ff7f80966c5a1d555910c93bb8444924
LNG prices in Asia have soared to an all-time record as traders scramble to secure new supplies amid a prolonged cold snap that has depleted inventories and prompted warnings of power shortages across the region.
The Asian Japan-Korean Marker index hit $US32.49 ($41.82) per million British thermal units on Tuesday, eclipsing $US30/mbtu for the first time and more than 15 times prices recorded just six months earlier.
Spot prices have now soared 60 per cent in less than a week, with frigid weather across Asia and Europe sparking a frenzy among gas buyers. Fears of blackouts have emerged in Japan, with utilities calling on the public to conserve energy to ensure the lights stay on.
The massive jump in LNG spot prices may also raise concerns for Australia’s gas-hungry manufacturers that have been campaigning for an LNG netback price in a bid to reduce their costs.
Australia’s east coast domestic gas price is now linked to international LNG prices and markets after Queensland’s three export projects worth $80bn started shipping local gas to customers in Asia over the past few years that effectively tied the two markets together.
The LNG netback — a local LNG price that takes out the cost of processing and shipping gas to Asian customers — is currently at just under $10 a gigajoule based on the Asia JKM forward curve for 2021, according to consultancy EnergyQuest.
That may worsen problems faced by big energy users who complain they can’t find gas on a contracted basis for less than $8-$10 a gigajoule, more than double historic levels, which could force some facilities into importing products rather than producing Australian-made goods or even shutting their doors.
“The spike is caused by a combination of colder than expected weather in north Asia and cargo disruptions and bottlenecks,” EnergyQuest CEO Graeme Bethune said. “The last few winters have been warmer than expected and with spot prices low buyers were probably lulled into a false sense of security. There has also been stronger than expected growth in the Chinese economy.”
Commodity trader Trafigura paid $US39.30/mbtu for an LNG cargo from France’s Total, which is thought to be one of the most expensive deals ever struck in the gas market.
Australian companies are also among producers cashing in, with a cargo of Australian LNG from the $US54bn ($70bn) Gorgon plant in Western Australia selling for $US37/mbtu to a Japanese utility over the weekend, according to an industry source.
Woodside Petroleum stands to cash in from an expected doubling of spot LNG prices this year, Bernstein analysts said, with a quarter of its total production volumes sold on the spot market.
It forecasts spot LNG forecast to trade at $US8/mbtu this year and $US9.50/mbtu next year, more than double 2020 prices of $US4.20/mbtu.
Producers with east coast gas exposure could be among the winners, according to Credit Suisse.
“The biggest surprise in 2021 so far has been LNG to my mind. And the markets LNG and east coast gas price expectations have not yet priced in upside potential to the extent oil expectations have improved of late in our view,” Credit Suisse head of energy research in Australia Saul Kavonic said.
“Every $US1/mmbtu higher LNG price should increase domestic gas netbacks about $1.20/GJ. And the market’s east coast gas price expectations have not yet priced in upside potential the way oil has, in our view.”
Oil also hit an 11-month high on Tuesday near $US57 a barrel on Saudi Arabia’s plans to limit supplies. Chinese gas distributors have also been caught out by the rush to find supplies with some users resorting to taking supplies of trucked LNG, Wood Mackenzie said.
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