LNG Pricing Goes South as Asia's Demand Cools Down in Global Market Slump

LONDON: The spot liquefied natural gas (LNG) prices in Asia hit record lows this week, dropping to levels not seen since early July 2021. This is due to weak demand and high inventories in northeast Asia, which have put pressure on prices. Meanwhile, inventories in Europe are at record levels as the continent exits the winter season. In the week prior, the estimated mean value of liquefied natural gas (LNG) for northeast Asia delivery in May was $12.50 per million British thermal units (mmBtu), indicating a 3.8% or $0.50 decrease. This represents a year-to-date drop of 55% and a decline of over 82% from the peak of $70.50/mmBtu seen in August 2022.

Despite lingering in the low $12s, the Chinese market seems to be relatively quiet now, suggesting they are content with the current situation. The regional demand has been curbed due to several factors such as ample LNG inventories in South Korea, anticipated nuclear availability, and the absence of strong Chinese spot cargo demand.

Sentiment is being weighed down for the latter part of summer due to the lack of spot market activity from buyers in China. The current state of high end-winter storage in Asia is anticipated to suppress summer import demand, reducing restocking activities for the upcoming winter.

As the re-stocking season approaches, Europe finds itself in an unexpectedly favorable position due to the surprisingly mild winter it experienced. With over 50% of the vast onshore gas storage already filled, the levels have already surpassed those of the previous two years, which were below 25% at this point. This highlights the fact that Europe's gas demands this summer will significantly reduce as it moves towards meeting its storage targets ahead of the next winter season.

Expect more LNG to be imported due to reduced supply of Russian pipeline gas this year. This means that global competition for these cargoes will continue, despite better storage conditions. The strikes in France may have cost at least one million tonnes of LNG in March, but the impact on the European gas system has not been significant. Cargoes have been diverted to neighbouring terminals. The availability of vessels led to a decrease in LNG spot freight rates. Atlantic rates were recorded at $44,500/day on Friday, while Pacific rates were at $66,250/day.