Q1 LNG WRAP: Increased market volatility and high prices dampen spot trading in Asia
Spot trading activity in the Asia-Pacific LNG market slowed sharply in the January-March quarter, as global events such as the Russian-Ukrainian war, the earthquake in Japan and the shortage of gas pipeline in Europe have caused market volatility and pushed up prices, market sources said. .
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The first three months of 2022 marked the highest average monthly LNG spot prices in Asia due to strong demand from Japan, supply cuts in Malaysia and Australia and firm prices in the Atlantic.
Platts JKM monthly average prices for January, February and March 2022 deliveries were valued at $35.87/MMBtu, $32.845/MMBtu and $24.815/MMBtu, respectively, according to data from S&P Global Commodity Insights.
Prices were significantly higher compared to monthly average prices for the same months in 2021 at $8.173/MMBtu, $18.309/MMBtu and $8.264/MMBtu, respectively, according to the data.
High LNG spot prices have led Asian importers to maximize purchases through long-term contracts and reduce spot purchases. For example, most long-term contract LNG cargoes in Japan were imported at $9-$13/MMBtu for January and February, according to Ministry of Finance data, while most spot cargoes imported in during the first two months ranged from $20 to $37/MMBtu. .
As a result, several Asian importers have brought in summer shipments earlier for spring, or shoulder demand season.
Spot LNG purchases for January-March delivery were heavily concentrated with Kogas and Japanese importers following a harsh winter and stronger gas and power demand, while demand Additional cash from Chinese entities during the quarter was limited, due to low prices of LNG transported downstream and the tightening of the pandemic. -directed restrictions.
In addition to seasonal factors, spot demand for LNG from some Japanese power companies also increased due to Indonesia’s suspension of coal export to meet domestic needs, which disrupted the production schedule. shipping to Japan from January to early March.
Earthquake in Japan
A magnitude 7.4 earthquake off Fukushima in northern Japan in late March 16 further tightened the LNG spot market. The quake shut down a dozen coal, gas and oil-fired power plants, removing more than 6 GW of capacity.
Nearby utilities such as Jera and Tohoku Electric purchased several delivery shipments in late March and April, which impacted spot demand.
According to the Japanese Ministry of Energy, Trade and Industry, Japan’s LNG inventory for power generation from February 6 to 27 fluctuated between 163 million tons and 182 million tons, compared to 198 million tons over the past four years. Levels fell from 147 million tonnes to 172 million tonnes from March 6 to 27.
Supply in the Asia-Pacific region was tight in the first three months following lower production from upstream gas fields such as Pegaga, which led Petronas to exercise a lower tolerance in vis-à-vis quantities. -to Japanese importers.
Meanwhile, a record-breaking heatwave that hit Western Australia in late January caused a few trips to various LNG liquefaction facilities, leading to production losses and loading delays for shipments bound for Australia. Northeast Asia.
The conflict between Russia and Ukraine since February 24 has further pushed up European gas and LNG prices in Asia throughout 2022, with several countries avoiding buying Russian-origin LNG on the market in cash.
From February 21 to 24, the JKM/TTF discount was 66 cents/MMBtu $1.569/MMBtu, but the gap widened to a discount of $15.1/MMBtu on March 4. Since then, TTF has hovered above JKM most days, with May JKM being valued at $29.249/MMBtu, or minus $3.806/MMBtu, compared to TTF May.
Activity in European LNG and gas futures has slowed significantly since late February as higher margin requirements forced participants to scale back their trades. This has reduced companies’ ability to effectively hedge and manage risks associated with recent volatility in global gas markets, industry sources said.
According to data exchange.
In January, February and March, a total of 44, 27 and 17 offers, offers and transactions were published during the Asian physical MOC process, which is significantly lower than the 50, 63 and 55 offers, offers and transactions published in the corresponding months of the previous year. All deals, offers and transactions reported in the first quarter of 2022 were either related to JKM or related to TTF.
In comparison, 123 out of a total of 165 offers, offers and transactions reported during the physical MOC process were fixed price for the first quarter of 2021.
A similar trend was observed in the two-sided market, with most reported trades having been concluded based on a reference price. But there was still some resistance from state-owned importers in India, Pakistan and Thailand who continued to issue tenders asking that offers be made on the basis of a lump sum price. Sellers said participation in these tenders was limited by the daily volatility of market prices and the long validity periods attached to the offers.
For the derivatives MOC process, a total of 215 offers, offers and trades were reported for January, while 194 offers, offers and traders were reported a month later in February. For the month of March, 72 bids and offers were reported for the derivatives MOC process.