Page 4 - AsianOil Week 03 2021

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Asian LNG buyers need

to rethink strategy

LNG buyers should view the current price spike as a sign of the things to
come later this decade if more liquefaction capacity does not reach FID soon

COMMENTARY ASIAN buyers of liquefied natural gas (LNG) are This winters’ acute shortage has come as
beginning to rethink their energy strategies after something of an early warning shot across the
prices soared to record highs in recent weeks. bow for buyers and, while current prices may
WHAT: A mixture of supply outages and plunging be unsustainable as temperatures rise, one
Spot LNG prices have northern hemisphere temperatures have sent researcher has warned that several Asian gas-
spiked to record highs. the market into a frenzy, with buyers chasing to-power and LNG import projects are at risk
spare cargoes to meet increased demand back of cancellation.
WHY: home.
Production outages and a S&P Global Platts reported last week that Strategic rethink
surge in demand proved the Japan-Korea-Marker (JKM) benchmark The Institute for Energy Economics and Finan-
to be the perfect storm. for spot cargoes delivered in February had cial Analysis (IEEFA) released a report on Janu-
reached a record high of $32.49 per mmBtu ary 14 suggesting that more than $50bn worth of
WHAT NEXT: (898.67 per 1,000 cubic metres) on January 12. such projects in Bangladesh, Pakistan and Viet-
If importers and While there are short-term factors driv- nam were at risk owing to soaring spot prices in
exporters cannot find a ing the price spike, certain decisions made by recent months.
middle ground then both buyers have also compounded the issue. For “Asian LNG spot prices have soared to
sides will be plagued instance, importers throughout Asia began a new high on the back of stronger than
by price volatility and some years ago to shy away from expensive expected seasonal demand for heating as
uncertainty in the years long-term, oil-linked supply contracts, argu- freezing weather grips large parts of the
to come. ing that the “Asian premium” was unjusti- northern hemisphere,” IEEFA analyst Bruce
fied and that it made more sense to negotiate Robertson said in the report. “Interruptions
short-term contracts or buy directly from an to supply in Malaysia, Australia and the US,
oversupplied spot market. three of the world’s largest LNG exporters, and
Project developers, however, warned that higher freight rates have also affected prices.”
without buyers signing up to long-term foun- Robertson argued: “Higher and volatile
dation contracts it would be much harder to LNG prices will make operating LNG-pow-
secure financing for liquefaction projects. ered generation plants more costly and unpre-
This, in turn, would eventually lead to supply dictable. This may lead to the underutilisation
tightness, with a mid-decade shortage widely of LNG plants and rising gas and electricity
predicted. tariffs for customers.”

P4 www. NEWSBASE .com Week 03 21•January•2021