Liquefied natural gas prices have jumped to their highest level on record as a severe cold snap in Asia boosts demand at a time when cargoes of the super-chilled fuel are hard to come by.
Spot prices in Asia reached a record level of $20.705 per million British thermal units on Thursday, according to an assessment of daily trading by S&P Global Platts, as traders and buyers in South Korea, Japan and China scrambled to secure supplies.
That is more than a fourfold increase on where prices were trading in September. The market is generally stronger in winter as demand rises, but the size of the leap has still caught out some market participants.
“What has triggered the rally is colder than normal weather in Asia and Europe and a complete lack of availability of LNG tankers while supply outages have really tightened up the market,” said Samer Mosis at S&P Global Platts.
An unusually large number of cargoes have been heading to Asia from the US, tightening the availability of LNG tankers. Delays at the Panama Canal have also added at least two weeks to the round trip from the US Gulf Coast, while supplies from Qatar and Malaysia have been lower.
Electricity and heating demand in Japan, one of the world’s largest importers of LNG, is even higher than during a normal cold spell because of a campaign to open windows to help combat spreading coronavirus indoors.
“These spot prices may not last beyond March,” Mr Mosis added. “But it’s been a reminder that securing an additional spot cargo in the dead of winter can quickly become very expensive and is not always straightforward, especially if freight is not available.”
LNG is one of the world’s fastest growing fuel sources as large Asian economies see it as a route to cutting their reliance on more highly polluting coal at a time when climate change has risen up the political agenda.
South Korea’s state-run utility Kogas said that while it buys 70 per cent of its LNG supply through long-term contracts it needs to access the remainder in the spot market regardless of price.
“We still have enough inventories. But demand for LNG is bound to increase further, given the government policy to reduce coal power,” Kogas said. “If we face supply shortages due to the cold winter, we will have to buy more on the spot market to match demand, even if prices are high.”
The rally in prices has provided some short-term relief for US LNG suppliers. But the market is still forecast to be in surplus around the middle of this decade as LNG projects commissioned before the pandemic come on stream.
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Traders said growing demand and the recovery from the coronavirus pandemic meant prices are expected to average higher in the next two to four years until those projects start up.
For the UK high prices will add to pressures in the country’s energy system, which relied on LNG imports to meet more than a quarter of gas supplies last winter, at a time when excess supplies were being dumped into Europe where there is plentiful import and storage capacity.
Additional reporting by Nathalie Thomas in Edinburgh and Gregory Meyer in New York