Spot LNG prices dip as Japan secures supplies
Japanese utilities top up their stocks as cheaper gas prompts switch from oil
Asian spot LNG prices dipped slightly over the week, with Japanese utilities stepping out of the market after stocking up for early summer demand.
But falls in prices are likely to be limited because of the Rasgas train 3 maintenance shutdown next month and Asian peak summer demand in July and August.
Spot LNG prices in Asia were around $11.50-12.00/m British thermal units (Btu) over the past week, compared with $12.00-12.50/m Btu in the week before, market participants said. The level was still higher than around $10/m Btu before the huge eartquake and tsunami struck Japan last month, and long-term prices are also expected to rise because of higher Japanese import volumes from lost nuclear power capacity.
Tokyo Electric Power (Tepco), the operator of the crippled Fukushima-Daiichi nuclear plant, also bought a record 2.138m tonnes of LNG in March, but burned just 1.765 million tonnes, the company said.
The utility, which tends to buy larger volumes in March than other months, also said it has bought enough fuel to burn in April and May. August purchases typically follow the March purchase volumes as the electricity demand peaks in summer as Japanese consumers switch on their air conditioners.
“So far, it seems Tepco has been using options for long-term contracts and buying some from other utilities,” an LNG trader said. “But we are getting inquiries from them."
The trader added Tepco and Tohoku Electric Power, whose nuclear units have also been affected by the earthquake, may step in to the LNG spot market at the same time as other utilities to meet summer electricity demand. Both companies have also bought LNG through cargo swaps with other Japanese and South Korean buyers -- particularly Korea Gas, Chubu Electric Power and Tokyo Gas.
Switch to gas
Some traders also said cheaper LNG may prompt some buyers to switch from oil.
In the past, Tepco bought long-haul cargoes of heavy sweet crude oil, which can be directly burnt at oil-fired power plants, from countries such as Gabon. But one oil trader, has who supplied Gabon’s Rabi Light to Tepco in the past, said he has not received any queries from the company.
“Right now, gas is a lot cheaper,” he said. “So if they need a spot cargo and if they have enough gas-fired power plant capacity to ramp up generation, they would go for LNG.”
A Morgan Stanley research note also showed Asia’s spot LNG prices were about $70 per barrel of oil equivalent, while gasoil with 0.5% sulphur content is nearly $140/b and high-sulphur fuel oil was above $100/b. This compares with Brent crude futures of around $122/b.
Traders said South Korea, which is the largest spot LNG buyer in the world, could be a wild card in summer.
But Japanese LNG imports were likely to increase in the long run, with no sign of any of Japan’s affected nuclear power plants restarting. Maintenance works are likely to take longer than before because of tighter security inspections, leading to lower utilisation rates at nuclear power plants for many years to come.
Qatargas said it would supply 60 extra cargoes, totalling 4 million tonnes, to Japan over the next 12 months. Japan’s Chubu also bought four spot cargoes from Qatargas, market sources said, while Russia’s Sakhalin-2 is also expected to supply more cargoes to Japan. Meanwhile, it emerged that a cargo from Peru LNG is on its way to Japan.
These extra deals have not tightened the LNG market sufficiently to divert cargoes from the Atlantic Basin, analysts said.
“We reiterate our view that UK NBP gas prices are much too high for five reasons: no storage costs in summer; poor demand in 2011; spare capacity and pre-paid Russian gas still available; no LNG rerouting from the UK to Japan; and long-term geopolitics," French bank Société Générale said in a research note.
This was reflected in the UK gas prices for May, which fell to around £0.5825 a therm ($9.47/m Btu) from around £0.608 a therm a week ago.