A breakneck rally in Asian natural gas spot prices is forcing some importers to halt plans to buy additional shipments of the power plant fuel.
North Asia spot liquefied natural gas prices are surging toward $40 per million British thermal units, the highest in over three months, on fears of a global supply squeeze, according to traders with knowledge of the matter. The benchmark is up nearly 70% so far this week and is at a seasonal high.
Some Asian buyers are now unwilling or unable to procure LNG at current spot rates, instead choosing to wait for prices to come down before refilling inventories, according to traders. That risks leaving buyers short in the event of extreme weather or other major disruptions.
Indeed, the market continues to be roiled by troublesome news that has kept the pressure on spot prices.
Moscow tightened its squeeze on crucial pipeline gas flows to Europe this week, forcing nations to confront the prospect of no more Russian gas, while traders were stunned as a key US LNG export plant announced it will be shut for months after a fire. Traders fear that Europe will replace the lost supply with spot LNG shipments, leaving less fuel for Asia.
Intensifying global competition for a dwindling amount of available LNG through the rest of the year threatens to drive prices higher and push up electricity bills. A pause in spot purchases from price-sensitive buyers in Asia, such as India, could provide some relief to the market.
China, the world’s top importer of LNG in 2021, has cut back spot purchases this year after virus restrictions eased usage. While demand is seen recovering by winter, China’s LNG importers don’t want to buy spot shipments at current prices, since they would make a loss when the fuel is sold into the much cheaper domestic gas market, traders said.
Meanwhile, Pakistan released a tender to procure four LNG cargoes for July delivery to help ease a domestic fuel shortage and crippling blackouts. However, it isn’t clear whether the cash-strapped nation will be able to buy the shipments at these sky-high spot rates, traders said.
To be sure, there are Asian importers — such as Japan’s utilities or trading houses — that have no other choice but to buy LNG spot shipments at current rates, traders noted. They have power plants or domestic customers that require the fuel, and there are no alternatives.
The Japan-Korea Marker, the LNG spot benchmark for North Asia, surged 33% to $38.58 per million Btu on Thursday, the highest since early March, according to a S&P Global assessment seen by traders.
Image credits: Roy Domingo