Global LNG-Asian spot price hits four-year high

• Asian prices return to pre-Lehman crash high
• New production start-ups to add 10 cargoes/month
• Europe re-exports record number of cargoes

London (Reuters) : Asian liquefied natural gas (LNG) spot prices for July delivery hit highs not seen since mid-2008 this week as import demand from a nuclear power-free Japan rose while recent high oil prices supported gains.

Cargoes of spot LNG in Asia changed hands for $18/mmBtu on average across July, up from $17.50/mmBtu over the past fortnight, while deliveries in the later half of the month were pegged even higher at between $18.20/mmBtu and $18.30/mmBtu, trading sources said.

“The last time prices were this high was just before Lehman Brothers crashed in 2008,” a trader from a major Japanese buyer said, sending shockwaves across global financial markets that reduced energy consumption as economic growth stalled.

The shutdown of Japan’s nuclear plants since the Fukushima disaster in March 2011 has shifted the global LNG market from a glut and price slump in 2009-2010 to finely balanced and even slightly tight.

Also supporting recent gains was the conclusion of a string of short-term LNG supply deals into Asia linked to the price of crude oil, executed while oil still traded in the high $120 a barrel range at the start of May, another trader from a Japanese trading house said.

Japan, the world’s largest liquefied natural gas (LNG) importer, has been buying up cargoes as its utilities brace for the possibility of some warmer than normal summer months without nuclear power.

Japan’s nuclear capacity, which previously accounted for about a third of the country’s electricity production, has slowly been taken offline since the Fukushima nuclear crisis last year triggered nuclear safety concerns.

The last remaining online reactor, Hokkaido Electric’s Tomari No.3, shut on May 5 for maintenance.

Despite ramping up LNG imports as a substitute electricity generation fuel, four Japanese utilities still expect to see a summer power shortage this year without nuclear power.

But one trader expected prices to ease back from current high levels over the next few months.

“I’m not sure that the high prices now are sustainable as utilities are mainly covered for the June and July periods right now,” the source from a trading house said.

He added that a slump in oil prices to $111 a barrel since the start of the month as well as the start-up of new production plants in Australia and Angola should add to the downward pressure, he added.

Furthermore, the recent sell tender issued by Indonesia’s BP-operated Tanguhh production plant for four LNG cargoes across June and July will add more supply to the market.

“Taking into account all of this new supply, we can expect about 10 extra cargoes of production per month,” the trader said.

Several LNG plant outages in the Middle East also helped tighten supplies. Qatargas, the world’s largest LNG supplier, shut all three LNG producing units at its Qatargas-1 plant for three weeks’ planned maintenance, while another attack on Yemen LNG’s pipeline disrupted production from the facility.

In Europe, plentiful pipeline supplies of gas silenced the continent’s LNG spot markets.

Instead, European utilities re-exported a record number of LNG cargoes in April to profit from a sharp divergence in prices between Europe and markets in Asia and South America, data from shipping consultancy Waterborne showed.

Cargoes of spot LNG in Asia have been changing hands at double European prices.

Waterborne estimated that a record 458,000 tonnes of re-exports were shipped from European terminals last month, triple the export total for March.

A re-export is when a utility unloads a cargo from its supplier into a terminal storage tank, then re-loads the LNG onto a different ship for onward delivery.

This practice allows companies without producing assets to trade the fuel on international markets.