Page 6 - AsiaElec Week 04 2021

AsiaElec COMMENTARY AsiaElec

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

ASIA ASIAN buyers of liquefied natural gas (LNG) are Australia and the US, three of the world’s larg-
beginning to rethink their energy strategies after est LNG exporters, and higher freight rates have
WHAT: prices soared to record highs in recent weeks. also affected prices.”
Spot LNG prices have A mixture of supply outages and plunging Robertson argued: “Higher and volatile LNG
spiked to record highs northern hemisphere temperatures have sent the prices will make operating LNG-powered gen-
market into a frenzy, with buyers chasing spare eration plants more costly and unpredictable.
WHY: cargoes to meet increased demand back home. This may lead to the underutilisation of LNG
Production outages and a S&P Global Platts reported last week that plants and rising gas and electricity tariffs for
surge in demand proved the Japan-Korea-Marker (JKM) benchmark for customers.”
to be the perfect storm spot cargoes delivered in February had reached The analyst warned that LNG prices were
a record high of $32.49 per mmBtu (898.67 per likely to trend upwards as volatility gripped the
WHAT NEXT: 1,000 cubic metres) on January 12. market, owing to “lower levels of drilling, finan-
If importers and While there are short-term factors driving cial instability in the oil and gas industry, and low
exporters cannot find a the price spike, certain decisions made by buyers levels of industry investment”.
middle ground then both have also compounded the issue. For instance, His warning came just days before Reuters
sides will be plagued importers throughout Asia began some years reported that both Pakistan and Bangladesh
by price volatility and ago to shy away from expensive long-term, oil- had begun rationing gas supplies amid the price
uncertainty in the years linked supply contracts, arguing that the “Asian spike.
to come premium” was unjustified and that it made more
sense to negotiate short-term contracts or buy Emergency rationing
directly from an oversupplied spot market. “The current gas crisis being faced by the [Paki-
Project developers, however, warned that stani] industry includes disconnection of gas
without buyers signing up to long-term founda- supply to industries as well as low gas pressure,”
tion contracts it would be much harder to secure Trade and Industry Association of Karachi pres-
financing for liquefaction projects. This, in turn, ident Saleem Uz Zaman told the newswire on
would eventually lead to supply tightness, with a January 18.
mid-decade shortage widely predicted. State-owned distributor Sui Southern Gas
This winters’ acute shortage has come as Co. (SSGC) has warned industry associations
something of an early warning shot across the that it faces a supply deficit of around 200mn
bow for buyers and, while current prices may cubic feet (5.66mn cubic metres) per day.
be unsustainable as temperatures rise, one The Bangladeshi government, meanwhile,
researcher has warned that several Asian gas- has cut gas supplies to power plants, but has
to-power and LNG import projects are at risk of maintained industrial supply, according to
cancellation. one unnamed senior official at state-run
Petrobangla.
Strategic rethink The general manager of Bangladesh’s Rupan-
The Institute for Energy Economics and Finan- tarita Prakritik Gas, Rafiqul Islam, said: “LNG
cial Analysis (IEEFA) released a report on Janu- prices have gone crazy... For the last few tenders,
ary 14 suggesting that more than $50bn worth of we didn’t get any response from suppliers. We
such projects in Bangladesh, Pakistan and Viet- are continuing our efforts to buy from the spot
nam were at risk owing to soaring spot prices in market ... But it is very unlikely to get competi-
recent months. tive prices in this highly volatile market.”
“Asian LNG spot prices have soared to a new An Australian LNG developer high-
high on the back of stronger than expected sea- lighted the extent of the price gains during
sonal demand for heating as freezing weather its fourth-quarter results statement, with
grips large parts of the northern hemisphere,” Woodside CEO Peter Coleman saying on Jan-
IEEFA analyst Bruce Robertson said in the uary 21: “We agreed to our highest ever spot
report. LNG price for delivery in the coming quarter,
“Interruptions to supply in Malaysia, surpassing our previous record set in 2012.”

P6 www. NEWSBASE .com Week 03 27•January•2021