Mild Weather, High Inventories Pose Challenges For Asia's Q1 LNG Outlook: S&P
The post-winter outlook for liquefied natural gas (LNG) in Asia faces uncertainties due to mild temperatures and consistently high stock levels among Asian utilities.
According to S&P Global Commodity Insights (GCI), the clouded market outlook is expected to result in reduced procurement activity for spot volumes, despite significantly lower prices.
Brief periods of colder weather in December and January did little to significantly reduce inventory levels among Asian utilities.
Chinese buyers, in particular, seemed unaffected by the recent cold snap, as many factories and schools were already closing down in preparation for the approaching Lunar New Year festive season.
The market observed over 30 spot LNG cargoes trading in the last two weeks. However, industry sources suggest that most of these transactions were opportunistic purchases driven by favourable price arbitrage between international and domestic prices, rather than strategic trading for demand coverage.
The current cold snap affecting China and South Korea is expected to be short-lived, with temperatures likely to return to milder conditions after this week.
This, combined with consistently high inventory levels, poses challenges for the LNG market's post-winter scenario.
The decline in spot LNG prices has attracted attention, with some Chinese buyers considering importing LNG cargoes to benefit from higher margins compared to domestic trucked energy prices.
Despite the favourable prices, market participants are cautious, closely monitoring market dynamics and ready to act based on price movements.
In particular, the March Japan Korea Marker (JKM) was assessed at USD 9.544/MMBtu on January 25, reflecting a 39.5 per cent decrease since 1 December.
However, despite the attractive prices, Korean buyers may limit purchases due to weak demand and a robust LNG inventory above 60 per cent.
Japan's Kansai Electric has issued a tender seeking LNG cargoes for April 2024 to February 2025, capitalizing on lower prices. The tender is influenced by the expectation of higher inventory by the end of the winter season in Asia.
The current market conditions in both Asia and Europe resemble patterns observed in the fourth quarter of 2023.
Weak downstream demand in Europe, fluctuation in price spreads between Asian and European LNG prices, and changing global supply dynamics are contributing to market headwinds.
Despite shipping constraints in the Panama Canal affecting LNG trade dynamics, the Asian market remains undeterred.
The US arbitrage window to Asia has been closed since mid-November, and rerouting via the Cape of Good Hope has made US LNG supply less competitive for the Asian market due to longer voyages and higher freight costs.
The market participants foresee the weakness in Europe potentially affecting the Asian market in the coming weeks, leading to a redirection of supply towards Asia and creating a more relaxed global supply fundamental.
Overall, sufficient LNG supply is expected, despite shipping constraints, with the Asian market's capacity to absorb additional cargoes being a key factor in market dynamics. (ANI)
