End of Winter Gas Buying Raises Alarm LNG Rally Will Reverse

(Bloomberg) -- The rally in Asian liquefied natural gas prices may soon run out of steam as the bulk of winter purchasing is complete, leaving the market awash with supply.

Benchmark LNG Japan/Korea Marker futures have jumped about 50% since mid-September to the highest in eight months as a boom in vessel rates and unplanned outages coincided with a flurry of buying from the biggest consumers including Korea Gas Corp. in preparation for winter.

But the uptick probably won’t last because buyers are mostly done stocking up for the heating season, according to traders surveyed by Bloomberg, and as output from new projects in Australia, Russia and the U.S. continues to climb.

China won’t be much of a help either, with the closure of its Rudong LNG terminal until at least November cutting the amount of cargoes that can be imported into the nation. Forecasts for warmer-than-normal weather over the next three months in Japan and South Korea may also limit gas consumption and reduce the need for spot cargo purchases.

“Demand in Asia is still weak,” said Fauziah Marzuki, an analyst at BloombergNEF. “Futures are trading for December delivery so the market is likely just reflecting a bit of price optimism for the winter period.”

Front-month futures were at $6.925 per million British thermal unit Friday after bottoming at a 2016-low of $4.275 in late-July. The December prices extended declines Monday to $6.855, and the premium of both the January and February contracts narrowed.

The line-up of bearish forecasters include Goldman Sachs Group Inc., which said last week the global LNG market will remain oversupplied for the next 12 months and reiterated its outlook for winter JKM at $6.10 per million Btu.

In particular, the bank said a spike in freight rates as a result of U.S. sanctions on units of China’s COSCO Shipping Corp. will prompt traders to discharge cargoes of LNG held in floating storage in order to lease out the tankers. This could further worsen the supply glut.

Despite recent increases, LNG prices are still trading below the five-year average for this time of year.

To contact the reporter on this story: Stephen Stapczynski in Singapore at sstapczynsk1@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Jasmine Ng, Aaron Clark

©2019 Bloomberg L.P.