Page 4 - GLNG Annual Review 2021

GLNG JANUARY GLNG

Asian buyers need to

rethink LNG strategy

The current price spike should be treated as a first

sign of the things to come later this decade if more

liquefaction capacity does not make it to FID in a
timely manner

PERFORMANCE ASIAN buyers of LNG are beginning to rethink high on the back of stronger than expected sea-
their energy strategies after prices soared to sonal demand for heating as freezing weather
WHAT: record highs in the winter of 2020-21. grips large parts of the northern hemisphere,”
Spot LNG prices have A mixture of supply outages and plunging IEEFA analyst Bruce Robertson said in the
spiked to record highs. northern hemisphere temperatures have sent report.
the market into a frenzy, with buyers chasing “Interruptions to supply in Malaysia, Aus-
WHY: spare cargoes to meet increased demand back tralia and the US, three of the world’s largest
Production outages and a home. LNG exporters, and higher freight rates have
surge in demand proved S&P Global Platts reported in January that also affected prices.”
to be the perfect storm. the Japan-Korea-Marker (JKM) benchmark for Robertson argued: “Higher and volatile LNG
spot cargoes delivered in February had reached prices will make operating LNG-powered gen-
WHAT NEXT: a record high of $32.49 per mmBtu (898.67 per eration plants more costly and unpredictable.
If importers and 1,000 cubic metres) on January 12. This may lead to the underutilisation of LNG
exporters cannot find a While there are short-term factors driving the plants and rising gas and electricity tariffs for
middle ground then both price spike, certain decisions made by buyers customers.”
sides will be plagued have also compounded the issue. For instance, The analyst warned that LNG prices were
by price volatility and importers throughout Asia began some years likely to trend upwards as volatility gripped the
uncertainty in the years ago to shy away from expensive long-term, oil- market, owing to “lower levels of drilling, finan-
to come. linked supply contracts, arguing that the “Asian cial instability in the oil and gas industry, and
premium” was unjustified and that it made more low levels of industry investment”.
sense to negotiate short-term contracts or buy His warning came just days before Reuters
directly from an oversupplied spot market. reported that both Pakistan and Bangladesh
Project developers, however, warned that had begun rationing gas supplies amid the price While there
without buyers signing up to long-term founda- spike.
tion contracts it would be much harder to secure are short-term
financing for liquefaction projects. This, in turn, Emergency rationing factors driving
would eventually lead to supply tightness, with a “The current gas crisis being faced by the [Paki-
mid-decade shortage widely predicted. stani] industry includes disconnection of gas the price spike,
This winters’ acute shortage has come as supply to industries as well as low gas pressure,”
something of an early warning shot across the Trade and Industry Association of Karachi pres- certain decisions
bow for buyers and, while current prices may ident Saleem Uz Zaman told the newswire on
be unsustainable as temperatures rise, one January 18. made by buyers
researcher has warned that several Asian gas- State-owned distributor Sui Southern Gas Co. have also
to-power and LNG import projects are at risk (SSGC) has warned industry associations that it
of cancellation. faces a supply deficit of around 200mn cubic feet compounded the
(5.66mn cubic metres) per day.
Strategic rethink The Bangladeshi government, meanwhile, issue.
The Institute for Energy Economics and Finan- has cut gas supplies to power plants, but has
cial Analysis (IEEFA) released a report on Janu- maintained industrial supply, according to
ary 14 suggesting that more than $50bn worth of one unnamed senior official at state-run
such projects in Bangladesh, Pakistan and Viet- Petrobangla.
nam were at risk owing to soaring spot prices in The general manager of Bangladesh’s Rupan-
recent months. tarita Prakritik Gas, Rafiqul Islam, said: “LNG
“Asian LNG spot prices have soared to a new prices have gone crazy... For the last few tenders,

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