Gas prices continue to surge as Europe and Asia compete for LNG cargoes
With Australia selling the majority of its exports under long-term contracts, US and Qatar producers are well placed to capitalise on surging spot prices
As the seasonal inventory building period for the northern hemisphere’s winter intensifies, spot LNG prices have reached US$34/MMBtu compared to just over US$6/MMBtu in Oct 2020.
According to Japanese customs data the landed prices for LNG imports reached US$10.81/MMBtu in Sep 2021 – nearly double the US$5.67/MMBtu this time last year. Imports of long-term LNG shipments to Japan from Australia (AUS), Qatar (QAT), the United States (USA), Malaysia (MYS) and Russia (RUS) have been steadily building to over 4mt and should be sufficient to cover winter demand (assuming that the extreme cold of La Nina evades us once again).
Consequently, sources close to the industry have indicated that some traders are taking advantage of the high prices and tight supply by playing the arbitrage between cheaper oil-indexed long-term supply and spot LNG. Notably, selling excess storage volumes to stressed Chinese importers.
Comparatively, the landed prices or LNG imports into China reached US$11.44/MMBtu in Sep 2021 – double the US$5.05/MMBtu this time last year. Of note, is that not all Chinese contracts are indexed to oil and these consumers will need to buy more gas on the spot market to be prepared for winter.
Commodity Insights estimates that concerns of winter fuel shortages will continue to sustain the extremely high LNG prices (which will be reflected in long-term prices in the coming months). On this basis, we expect this phenomena will support the current thermal coal price rally across Q42021.
This is good news if you are a coal and gas producer, but not so great for utilities.