Asian LNG prices rally to four-year seasonal high as demand soars

SINGAPORE (Reuters): Asian liquefied natural gas (LNG) prices have risen to their highest since 2014 for this time of the year as demand from China, India and South Korea has surged at the same time several production issues are curbing spot supply.

LNG prices typically peak during the Northern Hemisphere winter amid heating demand and during the summer to fuel power generation, but this year prices have climbed 32% since mid-April to $ 9.60 per million British thermal units (Btu) last week and are trading near $ 10 per million Btu this week.

Asian demand has strengthened this year led by stricter environmental standards, rising economic growth and a colder-than-usual winter. The higher prices could reduce LNG demand as industrial customers may consider alternative fuel sources.

Higher oil prices and China’s continued buying of spot cargoes this year is also supportive, said Kittithat Promthaveepong, a senior analyst at consultancy FGE.

“This is driven mainly by three factors: lower domestic gas production due to maintenance at gas fields, industrial demand due to fuel switching away from oil, and early stock building to prepare for the coming winter,” he added.

Beijing has switched some of its residential heating demand to natural gas from coal to reduce notorious air pollution in the country’s north though this has created conflicts with industrial users who face curtailments when supply tightens.

Higher-than-normal temperatures across Asia are also expected to boost LNG prices, data on Thomson Reuters Eikon shows.

Trade flow data in Thomson Reuters Eikon show Asian LNG imports in January to May this year are nearly 40% higher than at the same time in 2013, when Reuters started tracking the data, and up by 14% from last year.

Imports to China and Pakistan during the first five months of 2018 increased over 50% from last year, while shipments to India, South Korea, Taiwan and Singapore jumped by about 15% to 30%.

“Given the strength of Chinese demand last winter, Japanese and Korean ... utilities want to ensure that storage is full before the winter of 2018/2019 to avoid being caught out,” said Nicholas Browne, senior gas analyst at energy consultancy Wood Mackenzie in Singapore.

Japanese and South Korean storage ended the winter at the lowest levels in at least five years, he said. Indian imports have risen due to outages at some coal power plants and low reservoir levels reducing hydro-power generation.

Asian LNG prices could end the year at nearly $ 12 per million Btu, though higher spot prices could discourage industrial coal to gas switching, said Woodmac’s Browne.

Recent supply issues at LNG export terminals have also driven the price gains.

In Australia, Chevron idled the Train 2 at its Gorgon project for 30 days in May to carry out performance improvements.

Meanwhile, in the United States, gas supply into Cheniere Energy’s Sabine Pass liquefaction terminal dropped by one-third to 2 billion cubic feet per day on 15 May and have remained there, according to flow data, indicating maintenance at the plant.

Supply later this year will tighten as Angola LNG is planning maintenance for July at its plant that can export 5.2 million tonnes per year of the fuel.

Still, new supply from Australia and the United States could weigh on spot prices in the second half of the year, said FGE’s Promthaveepong.

Oil nears one-month low on report US asked OPEC to raise supply

LONDON (Reuters): Brent crude futures hit their lowest in close to a month on Tuesday following a report that the US government had asked Saudi Arabia and other major exporters to increase oil output.

International benchmark Brent was down $ 1.09 by 1040 GMT at $ 74.20 a barrel, its lowest since 8 May. US West Texas Intermediate crude fell 21 cents to $ 64.54.

The US government has asked Saudi Arabia and some other OPEC producers to increase oil production by about 1 million barrels per day (bpd), Bloomberg reported on Tuesday, citing people familiar with the matter. The request comes after US retail gasoline prices surged to their highest in more than three years and President Donald Trump publicly complained about OPEC policy and rising oil prices.

It also follows Washington’s decision to reimpose sanctions on Iran’s crude exports that had previously displaced about 1 million bpd from global markets, the report said.

“With the midterm elections coming up, obviously he wants lower gasoline prices, but at the same time, he’s alienating himself from the rest of the world ... so is anybody, apart from Saudi Arabia, maybe going to listen, or comply or cooperate?” PVM Oil Associates strategist Tamas Varga said.

“This seems to be an intervention in OPEC’s supply policy ...(the US) walks away from the Iran (nuclear) deal, which pushes up oil prices and less than a month later, demands producers raise production ... this story is Trump-esque.”

The Organization of the Petroleum Exporting Countries meets in Vienna on 22 June to decide whether the group and non-OPEC producers, including Russia, should raise output to make up for any supply shortfall from Iran and Venezuela.

Saudi Arabia and Russia were already discussing raising OPEC and non-OPEC oil output by around 1 million bpd, sources familiar with the matter said on 25 May.

Global oil supply has tightened with the OPEC-led production cuts that began in early 2017.

“(The output decision) is going to be the main event of the month and the main input for the second half of the year, so any change in OPEC policy is a big event,” Petromatrix strategist Olivier Jakob said.

Fund managers this year racked up a record bet on a continued rise in oil prices, but the sustained increase in US shale production and now the prospect of higher OPEC supply have prompted many investors to pare those positions.