Asian spot LNG prices fall to two-year lows

Liquefied natural gas (LNG) spot prices in Asia are at their lowest level in two years due to weak demand and high inventories. The average LNG price for July shipments to Northeast Asia fell 6.6% to $9.8 per million British thermal units (mmBtu), the lowest price since May 2021. Prices remain below $10 as demand remains absent, spurring interest from some Chinese industrial buyers and Japanese utilities who have taken on cargo while cheap pricing persists. South Asian buyers continue to dominate spot bids as a heatwave in Thailand is likely to generate additional demand. However, the direction of spot prices remains largely dependent on Chinese demand, which has only recovered modestly since the start of the year.

In Europe, LNG prices also dipped below $10 due to good inventory builds and limited need for additional supply. The economic driver for selling non-contracted LNG to Europe is due to lower gas demand and high inventories in Europe, which are 65% full. However, in the longer term, it could pose a risk if demand picks up again after a few months of contraction due to the economic recovery, or due to an extremely hot summer or cold winter, or if other consumers around the world start buying LNG, reducing the availability of LNG in Europe at times when it is needed.

Despite planned maintenance in the United States, Oman and Qatar, and ongoing unplanned downtime in Norway’s Hammerfest, cargo availability in the Atlantic Basin remains plentiful and will remain strong. The question is whether Northeast Asian demand could be sufficient to absorb a significant portion of Atlantic supply. There could be price incentive to ship US and West African cargoes to Northeast Asian buyers later this year market. The contango in Northeast Asia through late summer and early winter suggests healthy demand is expected to pick up as the weather becomes more extreme.

Spot rates for LNG cargo shipments have continued to decline this week, hitting new lows since summer 2022, with Atlantic spot rates falling to $36,000/day and Pacific rates to $39,750 on Friday. The forward curve shows a healthy contango, so demand is expected to pick up in the future. LNG prices are largely dependent on Chinese demand, which is yet to recover to its pre-pandemic levels. Countries experiencing heatwaves, such as Thailand, are putting pressure on their hydropower production and are likely to generate additional demand for LNG.


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