How long will the price of LNG in Asia continue to skyrocket?

In the past month, the spot price of Asian liquefied natural gas (LNG) has risen rapidly.

The soaring spot price of JKM is the result of multiple factors, including the strong growth of natural gas demand in Asia, the temporary suspension of LNG supply, and the tension in the international shipping market.

Strong growth in natural gas demand

In December 2020, Asian LNG demand increased by 14% year-on-year, reaching the highest value ever (26 million tons).

The strong growth of LNG demand in Asia is mainly driven by several factors: First, the extremely cold winter.

Temporary suspension of LNG supply

On the supply side, Europe’s largest LNG producer, Hammerfest, Norway, announced in October 2020 that it would suspend production for at least one year, and the plant would need to be rebuilt on a large scale after the fire in September of that year.

Adding fuel to the fire is that since December last year, several large LNG producers scattered around the world (such as the United States, Australia, Algeria and Qatar) have reported various project operation failures.

Tight shipping market

In order to prevent and control the epidemic, the number of LNG cargo ships allowed to pass through the Panama Canal every day has been reduced to half of the number before the epidemic.

The increase in voyage and the tightness of capacity directly cause the increase in freight rates.
According to data from Spark Commodities, the daily rent of LNG spot freighters on Atlantic routes more than tripled in the week starting on January 5.
Rising freight rates have further pushed up the total cost of LNG spot.

How long can the spot price rise?

Based on the above analysis, we can see: On the one hand, the fundamental problem in the transportation and supply fields lies in the impact of the epidemic.
How long the tension in the shipping market will last, and how long the supply interruption or shortage will last, fundamentally depends on our judgment on how long the epidemic will continue to raging.
On the other hand, the root cause of the strong Asian LNG spot demand lies in the abnormally cold winter and the non-permanent demand growth caused by the epidemic.
Cold winters often end in March.
Generally speaking, I believe that the probability that LNG demand will continue to remain strong after March is relatively low.

As an optimistic analyst, I tend to believe that vaccines are likely to bring the end of the epidemic around the world, so the soaring LNG spot price today will probably only be a flash in the pan.
The high LNG spot price is likely to continue in January and February, but it may be difficult to continue beyond March.

From a longer time horizon, tight supply in the LNG spot market will no longer be a problem.
Major LNG exporting countries such as Australia, the United States, Russia, and Qatar began to put into production a large number of new projects before the outbreak of the epidemic.
In the next five years or so, global LNG supply will gradually ease.
This kind of easing will make the excessively high prices lose the basis of existence.

Transfer from: China Energy News

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