Strong Chinese and Indian demand propelled Asian liquefied natural gas prices to an 10-month high on Tuesday, reflecting a scramble for supplies ahead of the northern hemisphere winter.
Beijing’s push to replace coal with gas for heating as it tries to reduce chronic air pollution in urban areas and a lack of coal in India has driven up the price for the supercooled fuel.
“This would normally be a quiet period between the shoulder months between summer and winter but this autumn we’ve seen a pick-up in Asian demand,” said Paul Wogan, chief executive of GasLog, which owns and operates LNG carriers. “A lot of increased demand has come within the last four to six weeks,” he added.
The Asian spot LNG index Japan-Korea Marker from S&P Global Platts was at $9.35 per million British thermal units on Tuesday, the highest level since mid-January, and almost a third higher than the same time last year.
Expectations of tight winter supplies have been growing, which has driven up domestic LNG prices, according to Kerry Anne Shanks, head of Asia Pacific gas and LNG research at Wood Mackenzie, the energy consultants.
China National Petroleum Corporation is preparing measures to protect domestic gas supplies ahead of an expected shortfall this winter with Beijing reducing supplies to industrial customers as it prioritises gas supply for heating.
“The need for rationing is a byproduct of the success that the government has had in switching residential and industrial customers to natural gas in a bid to curb air pollution in heavily industrialised provinces,” said Ben Wilson, analyst at Royal Bank of Canada in Sydney.
China’s summer natural gas demand was up 30 per cent above last year on a monthly basis, while year-to-date gas consumption is tracking 18 per cent above the same period last year, which has spurred sharp increases in LNG imports, according to RBC. The lack of China’s gas storage capacity means that, if the winter is colder than normal, there could be more demand for LNG in the coming months.
The country is likely to further boost its imports in 2018 as its long-term contracts may not cover demand. Mr Wogan said: “For a while, people thought China was over-contracted but in 2018 it will be a net [supply] deficit on their contracted volumes.”
In India, a fall in coal inventories has also boosted LNG demand, while a new LNG terminal set to open in Pakistan has also increased the country’s imports. The rise in demand has come at a time when the expected increases in supplies this year have also been lower than expected.
Source: FT.com
