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Asian spot prices fall

LNG Industry,

Asian spot prices fell in the first half of October as the region struggled to absorb abundant supply of LNG from the Pacific Basin amid weak demand fundamentals, ICIS noted. Falling crude oil prices also weighed on the near curve, as buyers anticipated lower contractual rates later in the winter.

The ICIS November 2014 East Asia Index (EAX) was assessed at US$ 13.950/million Btu on 15 October, having shed US$ 0.775/million Btu from a high point of US$ 14.725/million Btu on 29 September. This represented a US$ 0.588/million Btu loss since the contract rolled to become the front month on 16 September. December EAX was assessed at US$ 14.468/million Btu on 15 October, having fallen by US$ 0.307/million Btu since 16 September.

As the new contract month began in mid-September, sellers cited the high cost of marginal supply from the Atlantic basin in pushing to extend the rally that began in late July. Free on board (FOB) prices remained around US$ 13.000/million Btu in the Atlantic basin, while opportunities from the usual sources of Nigeria and Trinidad remained limited.

Many of Japan’s larger utility buyers remained out of the market because of ample inventories and predictions of mild October weather. South Korea’s KOGAS continued its attempts to enter into swap arrangements by offering prompt volumes to the market in return for receiving volumes later in the winter. However, smaller Japanese utilities and a number of Chinese buyers had expressed interest in November deliveries.

On 26 September, the highest bid for delivery in the second half of November was recorded at US$ 14.600/million Btu into Japan, while the lowest offer for the same delivery period was heard at US$ 15.100/million Btu.

By late September, the emergence of abundant supply from within the Pacific basin acted to cap any price rises. The North West Shelf (NWS) project in Australia, the ExxonMobil-operated PNG LNG project and Abu Dhabi’s ADGAS opened tenders to sell at least four cargoes for November delivery. Indonesia’s Bontang LNG export plant also closed a tender for the delivery of up to six cargoes on a prompt basis, while the BP-operated Tangguh project on the Indonesian island of West Papua was heard to be marketing four early winter spot cargoes. These cargoes were released to the market because of a delay to the start-up of the Lampung floating terminal off the coast of southern Sumatra.

In early October, the bear run in the crude oil market began to take its toll on LNG as ICE Brent prices shed nearly US$ 10.000/bbl in the first half of the month. Utility buyers lowered their bids in expectations of switching to petroleum products or nominating higher levels of oil-indexed volumes in their long-term contracts later in the winter. Many oil-priced contracts in Asia are indexed to Japan custom-cleared (JCC) or Brent crude with a three-or-more month lag. By 8 October, the lowest offer for the first half of November had fallen to US$ 14.100/million Btu, although most participants had shifted their attention to the later winter months.

By 15 October, all elements of the forward curve fell below US$ 15.000/million Btu. Prices for the delivery in the first half of November were assessed at US$ 13.763/million Btu, H2 November at US$ 14.138/million Btu, H1 December at US$ 14.225/million Btu, H2 December at US$ 14.701/million Btu and H1 January at US$ 14.925/million Btu.

Elsewhere, Brazil’s Petrobras continued to compete for spot volumes as reservoir levels in the country’s hydropower-producing regions fell to historic lows. The impact on Asia was offset by weak demand in neighbouring country, Argentina, which was obliged to postpone contracted deliveries after a mild southern hemisphere winter.

Despite declining prices in Asia, the downward pressure of falling crude prices on northwest European gas hubs left Europe’s buyers far short of being able to compete for import volumes. The premium of the ICIS Northwest Europe Index (NEX) to the EAX rose to US$ 5.500/million Btu by 15 October, representing a US$ 0.431/million Btu rise since the contract rolled on 16 September.

Source: ICIS

Adapted from press release by Ted Monroe

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