East Asian spot LNG prices on a steep incline towards winter

East Asian spot LNG prices climbed sharply between late August and mid-September amid growing global competition for FOB (free on board) volumes and a deteriorating outlook for alternatives to gas-fired generation in Japan, according to the ICIS East Asia Index (EAX).

The October ’14 EAX contract closed at $13.381/MMBtu on 15 September, marking a $1.781/MMBtu rise since it became the front month contract on 18 August. The November contract climbed by $2.437/MMBtu over the same period to $14.487/MMBtu.

As the new front month opened on 18 August, demand in the East Asia appeared muted initially. For most Japanese utilities, inventories remained well-stocked as cool late August storms suppressed air-conditioning demand. South Korea’s Kogas was heard to be marketing 10 cargoes to Japanese buyers on a swap basis in return for volumes in the second half of the winter.

On the supply side, Pacific basin plants continued to produce surplus cargoes with PNG LNG, Australia’s North West Shelf, Indonesia’s Bontang and Tangguh plants all marketing excess production for September or October delivery.

On 21 August, the highest bid for the second half of October was heard at 11.75/MMBtu, while the lowest offer for the same period was recorded at $12.50/MMBtu.

By the end of August, the momentum began to swing towards sellers, as competition intensified for FOB volumes while the dependence of Japanese utilities on gas-fired generation increased.

Press Release, September 16, 2014