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Record LNG prices and rates ‘won’t last,’ say analysts

As a barometer of LNG demand, Asia spot prices may tumble to a fifth of record levels seen this week from this March onwards if the weather warms as usual. LNG shipping rates should follow suit but could trend above 2020 levels, with the unusually strong winter uptick seen leaving its mark

‘The whole of 2021 could look very different if the cold weather [in the north] carries on for another month,’ says Toby Dunipace of shipbroker Simpson Spence Young

THE jury is out on whether the liquefied natural gas trade, which staged a dramatic comeback this winter, will outperform pre-pandemic levels, with much dependent on weather conditions in Asia in the months ahead.

The analytics arm of pricing agency S&P Global Platts held that Asia LNG spot prices should ease to a fraction of record levels seen this week as weather warms up in the north.

Asia JKM benchmark LNG prices were assessed at $32.50 per million British thermal unit this week, setting a new high within days from the start of the new year.

Jeffrey Moore, manager of Platts Analytics for Asia, suggested however, that this unusual rise is likely to be brief and that high priceswould not last beyond March, barring an extension of the cold snap currently hitting North Asia.

Platts Analytics projected that prices may fall towards $6 per mmBtu to trend below 2018 but above 2019 levels from the second quarter, barring among other factors, an uncharacteristically hot summer.

Asia spot market prices crashed to a record low of just over $1.80 per mmBtu during last summer following the economic lockdowns.

The record LNG prices nonetheless, reflect stronger than expected winter demand in North Asia, particularly in Japan and China.

Amid an ongoing supply outage at key plants in the region, importers there have turned to purchasing cargoes from the Atlantic basin. 

That has boosted shipping demand and resulted in a further tightening of LNG tanker supply.

Lloyd’s List highlighted earlier this week one charter fixed at a record rate of $350,000.

Japan and China posted the highest month-on-month increases in imports for December, ranging above 1m tonnes, Lloyd’s List Intelligence data showed.

Kenneth Foo, who heads up Platts LNG pricing team in Asia, flagged two indicators of strengthening LNG demand in China.

Day ahead Japan electricity prices surged past ¥150 per kilowatt hour over the past three days, having mostly traded at below ¥20 per KWh earlier this month.

China’s trucked LNG prices more than doubled from third-quarter levels to almost touch Yuan6,700 per tonne on trades reflected by Shanghai Petroleum Gas Exchange.

These prices are not likely to hold after the peak gas heating season runs its course by March.

Shipping rates are expected to slide if commodity demand eases from the second quarter.

But these unusual winter market forces may well hold more far-reaching consequences for the complementary shipping market.

“The whole of 2021 could look very different if the cold weather [in the north] carries on for another month,” shipbroker Simpson Spence Young’s LNG director Toby Dunipace said. “If this spot market continues as is, we may see 2021 beat 2020.”

On the other side of the equation, Mr Dunipace noted that record LNG fleet addition this year may possibly suppress rates, especially for older tonnage.

A total of 52 newbuilding tankers are due to join the working fleet, 20 of which are expected to come into operation in the first three months of the year, SSY data showed.

This is up from the previous record high of 49 newbuilds back in 2008.

Meanwhile, shipping rates are still benefitting from increasing tonne-miles, partly resulting from a diversion of east-west cargo flows due to congestion in the Panama Canal since October.

LNG tankers have spent over seven days making their way through the Panama Canal, going by SSY’s observations.

Some ships have resorted to sailing via Cape of Good Hope to reach markets in Asia.

On average, about 1.3 LNG cargoes transited via the Cape of Good Hope in December, up from 0.35 the year before, according to Platts Analytics.

 

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