Asian and European Spot LNG Prices Fell on Higher Inventory and Sluggish Demand

This week, the spot prices of liquefied natural gas (LNG) in Asia dipped again to tolerable inventory levels. However, a force majeure in Malaysia restored the buyer's concerns that they might be required to seek replacement cargo in the midst of competition with Europe.

According to the estimates of industry sources, the standard price of LNG in November delivery into north-east Asia LNG-AS was at USD 34.00 per million British thermal units (mmBtu), from the previous week's USD 4.50, or 11.7 percent pct. The Asian prices followed a downward trend because of milder weather and easing demand before the winter season. However, the temperature reaching colder-than-average levels during the winter will likely deplete inventory levels as soon as the heating demand begins.

A force majeure on supplies of LNG to its consumers was declared by Petronas, which owns Malaysia LNG, including Japanese utilities, as a result of the Sabah-Sarawak Gas Pipeline leak on September 21, during a time when Japan and many other European countries are scrambling to secure gas supply for peak demand during the winter.

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Gas prices in Europe calmed down before the European Union leaders met in order to discuss how and whether to put a cap on the prices of gas before winter approached. The European LNG prices are being weighed down by bottlenecks and the high shipping rates in the LNG import infrastructure.

According to Ciaran Roe, global director of LNG, S&P Global Commodity Insights' daily DES Northwest Europe LNG price benchmark for cargoes delivered in November on an ex-ship (DES) basis was USD 27.711/mmBtu on October 6. This is USD 22/mmBtu, less than the November gas price at the Dutch TTF hub.

For November and December cargo deliveries, there is a significant contango in prices of LNG, which occurs when the futures price is higher than the spot price anticipated to be about USD 8/mmBtu.

ICIS, the data intelligence company's recent statistics, revealed that LNG supplies from the U.S. to Europe outpaced Russian pipeline gas and LNG for the first time. According to data by ICIS, the LNG supply from the U.S. for Britain and the EU was 5.3 billion cubic meters (bcm) during September, compared to a total Russian supply of 3.7 bcm, including the lowest-ever pipeline gas supply of 2.2 bcm.

According to the global head of pricing at Spark Commodities, Henry Bennett, Atlantic prices for spot LNG freight climbed by 13 percent weekly to a record high of USD 360,750/day on Friday.

Early in the season this year, the LNG freight market is becoming more competitive as businesses try to reserve boats before the winter. According to Bennett, the Atlantic prices were still around USD 100,000 last year.

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According to Procurement Resources, the liquefied natural gas (LNG) prices dropped in the week ending October 7, 2022 owing to adequate inventory in the region as a result of the milder temperature and easing demand period till the begging of the winter season. However, the force majeure in Malaysia's Petronas owing to the leak in Sabah-Sarawak Gas Pipeline, as well as the anticipated colder-than-average temperatures in winter, may deplete the LNG, the liquefied natural gas inventory levels in the future.