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LNG market gears up for dynamic recovery with rising demand in Asia

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LNG market gears up for dynamic recovery with rising demand in Asia

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SINGAPORE – Liquefied natural gas (LNG) prices are poised for further gains as gas-hungry China consumes cargoes to fuel a rebound in economic growth, while easing of coronavirus-induced restrictions restores the industrial demand in India.

Higher oil and coal prices have also helped drive up world gas prices with Asian LNG spot prices. doubling in just three months.

“We believe this has been driven by a tightening of Asian LNG balances led by strong demand for generation in South China at the same time as South Korea reached maximum nuclear maintenance, while LNG demand from India affected. by Covid has stabilized, “said analysts at Goldman Sachs. in a note earlier this week.

China imported more than 7 million tonnes of LNG in May, a record for that month, and it looks set to import more in the next two months driven by strong industrial activity.

“The fuel switch (from coal) to households and businesses appears to have regained momentum after a short hiatus, and now has additional political momentum … which is strongly geared towards increasing the use of clean fuels and decarbonisation.” Fitch Solutions said.

South Korea’s newest and largest nuclear reactor, Shin Kori-4, shut down last month after a fire, which is expected to increase demand for LNG. An official with operator Korea Hydro & Nuclear Power Co said it was unclear when the reactor would resume operations.

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Tokyo Gas, Japan’s largest urban gas supplier, may increase storage capacity using LNG tankers, CFO Hirofumi Sato told Reuters in April, which could boost imports. Utilities in Japan, the world’s leading LNG importer, faced an energy crisis last winter that sent LNG prices skyrocketing to record levels.

Temperatures in Tokyo, Seoul and Shanghai are expected to be warmer than usual for the next two weeks, according to weather data from Refinitiv Eikon, further boosting gas demand in Japan, South Korea and China for the energy generation.

India’s gas consumption is expected to rebound in June after declining in the previous two months as states ease restrictions in the wake of a drop in coronavirus infections, authorities said this week.

Gas consumption in the world’s fourth-largest LNG importer could grow between 6% and 8% in the current fiscal year if the country emerges from the pandemic, said Manoj Jain, president of GAIL (India), the largest operator. of Indian gas pipelines.

European demand for LNG also remains strong, as imports are expected to fill storage levels that hit multi-year lows recently due to concerns over pipeline supply stemming from growing tensions between Russia and Ukraine and a market for LNG. carbon on the rise that may drive power producers to opt for LNG over coal Fitch Solutions said. Supply problems, both planned and unplanned, affect some plants in the United States, Australia, Malaysia and Indonesia, and are also supporting prices, traders said.

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That is displacing some of the demand from price-sensitive buyers like Pakistan and Thailand, which have only received high bids for tenders seeking shipments for July.

Overall, Asia LNG prices are expected to average around $ 7.30 per million British thermal units (mmBtu) in 2021 and $ 7.50 per mBtu in 2022, up from $ 4.20 per mBtu for the year past, said Kieran Clancy, assistant commodities economist at Capital Economics.

“The outlook for LNG demand going forward remains bright as it is used to fill gaps in power generation that currently cannot be covered by renewables,” he added.

(Reporting by Jessica Jaganathan, additional reporting by Yuka Obayashi in Tokyo and Heekyong Yang in Seoul; Editing by Gavin Maguire and Raju Gopalakrishnan)

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In-depth reports on the economics of innovation from The Logic, presented in association with the Financial Post.

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