Asian Freeze Sends Natural Gas Cargo Prices Into the Stratosphere

The rally in liquefied natural gas shows no signs of slowing as a cold snap is forcing Asian utilities to pay prices never seen before.

Freezing temperatures across the Northern Hemisphere, a shortage of the fuel as well as vessels to move it sent spot prices soaring more than 10-fold since April. It was just last spring that the market was on its knees because of an unprecedented glut caused by the pandemic.

On Friday, Exxon Mobil Corp. sold a spot cargo for delivery to Kyushu Electric Power Co. in the second half of January at a level of mid-$30s per million British thermal units, according to traders with knowledge of the tender. A rally in Asia, the biggest LNG consumer, echoed through Europe, where the regional gas benchmark is near a two-year high and prices in Spain hit a record as a rare snowfall covered Madrid.

“LNG prices have had a roller coaster year,” said Richard Holtum, global head of LNG and gas at Trafigura Group. “This is evidence of the increased seasonality and volatility” for the fuel increasingly used together with renewables.

Japan’s utilities are struggling to secure prompt LNG supplies as the cold weather is draining inventories. Temperatures in Beijing plunged to the lowest since 1966, while strong winds accompanied by icy weather are disrupting LNG deliveries. South Korea’s peak power demand recently rose to a record.

Asian Freeze Sends Natural Gas Cargo Prices Into the Stratosphere

Ships are increasingly hard to come by because of delays transiting the Panama Canal. The route is used a lot by tankers carrying U.S. cargoes that don’t have restrictions on their destination.

In Europe, freezing temperatures are pushing up prices to records and curbing opportunities to ship any extra supply to Asia.

The Exxon cargo came with a hefty premium to spot levels because it was sold so close to the delivery period. Tenders now normally cover deliveries from February to April.

The Japan-Korea Marker, Asia’s LNG benchmark, rose to $21.453 on Friday, the highest since S&P Global Platts began assessments in 2009.

In other developments on Friday, Trafigura bid $27.80 per million British thermal units for an early-February cargo to South Korea on the S&P Global Platts Market on Close.

Desperate Buyers

In a sign of how desperate buyers have become, the premium for first-half February cargoes delivered to Asia over second-half supplies rose to $5.775 on Friday, compared with 80 cents on Dec. 16, according to Platts.

In the meantime, the cost of securing vessels are soaring. Trafigura made a bid of $350,000 a day earlier this week to get hold a ship to move a U.S. cargo that wasn’t successful as there is a a shortage in the Atlantic basin, said people with knowledge of the matter.

“It is really date- and voyage-sensitive but these are historically high levels, referencing the strong demand and price for LNG in the East,” said Per Christian Fett, a global head of LNG at shipbroker Fearnleys. “In the Atlantic basin, vessel availability is very tight.”

Distorted logistics mean spot LNG has “a relatively open-ended ceiling,” S&P Global Platts said.

©2021 Bloomberg L.P.

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