Cooler Asia Summer May Add to LNG Woes as World Awash With Gas
(Bloomberg) -- Don’t count on a summer heatwave to rescue Asia’s liquefied natural gas prices. Weather forecasts signal lackluster demand in the largest importing region, raising prospects a global glut will deepen.
Temperatures across North Asia this summer will be cooler than a year ago, according to seven meteorologists surveyed by Bloomberg. This suggests the record heat in Japan and South Korea, which triggered a buying frenzy and catapulted prices to the highest since 2014, is unlikely to be repeated.
LNG prices in Asia have slumped about 40% so far this year as the three biggest consumers -- Japan, China and South Korea -- have slowed spot buying after a mild winter and amid brimming stockpiles. Meanwhile, new projects from Australia to the U.S. have left the market amply supplied.
“A cooler summer would mean that additional demand isn’t there, creating even more potential excess supply,” said Fauziah Marzuki, an analyst at BloombergNEF based in Singapore.
While forecasters were split on whether temperatures in North Asia would be above or below historical averages, the overall expectations are that they will be milder and less volatile than last summer, which saw a price spike in June.
A cooler-than-normal summer could also push spot prices in Asia down to parity or even a discount to Europe, reversing their typical premium, according to Robert Sims, an analyst at Wood Mackenzie Ltd.
“We expect the real recovery will need to wait until winter this year,” Sims said by email. Inventory levels in Japan and South Korea have declined since the start of the year, but are still above the seasonal 5-year average, he said.
Japan and South Korea recorded their hottest days ever last year. Temperatures peaked at 41.1 degrees Celsius (106 Fahrenheit) in Kumagaya, a city north of Tokyo, and 40.7 degrees in the northeastern South Korea town of Hongcheon.
Meanwhile, the escalating trade war between the U.S. and China could be a wildcard for prices in Asia. Beijing said Monday it will boost sanctions on American LNG imports to 25% from June 1, which could lead to Chinese players seeking to swap or sell cargoes.
Forecasters were asked by Bloomberg News in an email survey how they expected the weather in North Asia to fare this summer against both last year and historical averages.
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