Page 9 - GLNG Week 48

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Asian LNG spot prices sink further amid warnings of overpayment on contracts
PERFORMANCE
ASIAN LNG spot prices – already depressed this year – fell further this week, with downward pressure coming from new supply ooding the market amid weakening demand.
e average LNG price for January delivery into north-east Asia was estimated at around $5.60 per million British thermal units ($154.90 per 1,000 cubic metres), down by $0.10 per mmBtu ($2.77 per 1,000 cubic metres) from last week. e decline in prices came as buying activity was muted in both Asia and Europe, thanks in part to high inventories of gas in stor- age. Meanwhile, ample supply was available on the spot market from a variety of sources around the world.
e spot market looks increasingly attractive to buyers as prices remain low. Meanwhile, a warning has come over how much more buyers could spend if they purchase LNG under long- term contracts, many of which were locked in years ago.
S&P Global Platts, which sets the benchmark LNG price in Asia, noted last week that there was a “huge disconnect” between oil-linked con- tracts and prices on the spot market. is discon- nect means those buying LNG under long-term contracts could spend an average of $20bn per year more up to 2022 compared to those buying the fuel on the spot market.
e Japan/Korea Marker (JKM) spot price has averaged less than $6 per mmBtu ($165.96 per 1,000 cubic metres) this year, while oil has generally stayed above $60 per barrel. According
to Platts, this has resulted in a gap of around $3.60 per mmBtu ($99.58 per 1,000 cubic metres) between spot prices and oil-linked prices.
Platts’ manager of Asian LNG analytics, Jef- frey Moore, was cited by the Financial Times as saying utilities in Japan, South Korea and China had already paid an additional $23bn through long-term LNG supply contracts in the nine months up to September 2019.
As a result of this trend, some buyers, includ- ing Japan’s Jera and Tokyo Gas, have been seek- ing to reduce the amount of gas they receive under long-term contracts, as well as pushing for more exibility in contractual terms. Despite this, Jera – which is the world’s leading buyer of LNG – maintains that oil-linked contracts still make sense, as they o er more stability than the sometimes volatile, and still growing, spot mar- ket. In addition, long-term contracts help new LNG projects go ahead by guaranteeing a por- tion of demand.
Indeed, such contracts still account for the majority of the market, even as some buyers seek greater exibility. e spot market has been expanding rapidly, however, though it has only become liquid in the past three years. Accord- ing to the International Group of LNG Import- ers, the spot market combined with short-term contracts now represents 32% of global LNG imports. And buyers with the capacity to look beyond their long-term contractual obligations are increasingly likely to turn to the spot market in the current price environment.™
Some buyers, including Japan’s Jera and Tokyo Gas, have been seeking to reduce the amount of gas they receive under long-term contracts.
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