Gas: Restocking boost to LNG prices to fade soon – CE

The front-month futures price of Asia LNG (JKM) surged to a record high of just under $20 per mBtu in early January, before falling to around $6 by the end of February. Prices then started to rise again in April and are currently trading at a little under $10 per mBtu. This latest rise seems to have been driven by a rebuilding of stocks, which should run its course over the coming months. That said, the outlook for spot Asia LNG prices further ahead remains bright, Kieran Clancy, Assistant Commodities Economist at Capital Economics, reports.

Asia LNG prices have started to push higher again recently

“The key factor supporting Asia LNG prices is unseasonably strong imports. Imports of LNG in Asia initially soared over the winter in tandem with very strong demand for heating, before jumping again in May. Reports suggest that the latest rise in imports is due to a rebuilding of previously depleted stocks ahead of the summer (when demand for air conditioning – particularly in Asia – increases).”

“Imports of LNG in Europe are also likely to rise in the near term as stocks are rebuilt from their currently low level. Higher imports in Europe tend to lift the price of LNG in Asia. This is because Europe and Asia compete for LNG imports, reflected in the inverse relationship between their shares of global imports. Crucially, though, this restocking boost to demand will be temporary, which suggests that current Asia LNG prices of over $10 per mBtu are unlikely to be sustained.”

“The outlook for LNG demand further ahead remains bright, as it is used to plug the gaps in power generation that are not currently able to be met by renewables. We anticipate that Asia LNG prices will average $7.3 and $7.5 per mBtu in 2021 and 2022, respectively, up from $4.2 per mBtu in 2020.”