- Spot LNG demand for some Japanese power utilities also increased due to Indonesia’s suspension of exporting coal to meet domestic needs.
- The levels went down from 147 million mt to 172 million mt from March 6-27.
- Sellers said that participation in such tenders was limited by the daily market price volatility and long validity periods attached to offers.
Spot trading activity in the Asia-Pacific LNG market slowed dramatically in the January-March quarter, according to market sources, as global events such as the Russia-Ukraine conflict, Japan’s earthquake, and Europe’s pipeline gas shortfall caused market volatility and raised prices as reported by S&P Global.
Long-term contracts
The first three months of 2022 marked the highest LNG monthly average spot prices in Asia due to strong demand from Japan, supply cuts in Malaysia and Australia, and firm prices in the Atlantic.
The prices were significantly higher compared to the 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.
Elevated spot LNG prices led Asian importers to maximize procurement through long-term contracts and reduce spot purchases.
For example, most long-term contract LNG cargoes into Japan have been imported at $9-$13/MMBtu for January and February, according to the finance ministry data, while most spot cargoes were imported during the first two months ranged from $20-$37/MMBtu.
As a result, multiple Asian importers have been bringing in summer cargoes earlier for spring, or the shoulder demand season.
Spot LNG purchases for January-March delivery were heavily concentrated from Kogas and Japanese importers following a harsh winter and stronger gas and power demand, while additional spot demand from Chinese entities during the quarter was limited, due to low downstream trucked LNG prices and tightening pandemic-led restrictions.
Japan earthquake
Further tightening the prompt spot LNG market was a magnitude 7.4 earthquake, offshore Fukushima in northern Japan on late March 16.
The earthquake resulted in the shutdown of a dozen coal, gas, and oil-fired power plants, taking out more than 6 GW of power generation capacity.
According to Japan’s Ministry of Energy, Trade, and Industry, Japanese LNG inventory for power generation from Feb. 6 to 27 has fluctuated between 163 million mt to 182 million mt, compared to 198 million mt in the last four years.
The levels went down from 147 million mt to 172 million mt from March 6-27.
Meanwhile, a record heatwave that hit western Australia in late January caused a few trips at various LNG liquefaction facilities, resulting in some production loss and delays in loading for cargoes heading to Northeast Asia.
Russia-Ukraine war
The conflict between Russia and Ukraine since Feb. 24 further raised prices of European gas and LNG in Asia throughout 2022, as several countries avoided buying Russia-origin LNG in the spot market.
From Feb. 21-24, the JKM/TTF discount was 66 cents/MMBtu to $1.569/MMBtu, but the spread widened to a discount of $15.1/MMBtu on March 4.
Since then, TTF has been hovering above JKM on most days, with May JKM being assessed at $29.249/MMBtu, or minus $3.806/MMBtu, compared to TTF May. Activity in LNG and European gas futures contracts cooled down significantly since late February, as higher margin requirements forced participants to curtail trading.
This reduced the ability of companies to hedge effectively and manage risks associated with the recent volatility in global gas markets, industry sources said.
In January, February and March, a total of 44, 27, and 17 bids, offers, and trades were posted during the Asian physical MOC process — significantly lower compared to 50, 63, and 55 bids, offers, and trades posted in the corresponding months last year.
All bids offer and trades reported in Q1 2022 were either JKM-linked or TTF-linked.
A similar trend was observed in the bilateral market, with most trades reported concluded linked to a price benchmark.
But there was still some resistance from state-owned importers in India, Pakistan and Thailand who continued to issue buy-tenders that requested offers to be made on a flat price basis.
Sellers said that participation in such tenders was limited by the daily market price volatility and long validity periods attached to offers.
For the derivatives MOC process, a total of 215 bids, offers, and trades were reported for January, while 194 bids, offers, and traders were reported a month later in February.
For March, there were 72 bids and offers reported for the derivatives MOC process.
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Source: S&P Global
