LNG prices soar to record high amid energy crunch
Asian LNG prices have jumped to an all-time record as buyers grab any available supplies amid a global energy squeeze.
Asia LNG prices have soared to a record level, smashing the previous high mark, amid a global energy crunch and supply fears, with Australian exporters in line for a bounty if producers can sell spare cargoes on the spot market.
The Japan-Korean Marker, North Asia’s benchmark for spot LNG shipments, hit $US56.32 ($77.36) per million British thermal units on Wednesday night, nearly 30 times the LNG price recorded in June 2020, and the equivalent of $US320 per barrel of oil equivalent or four times the current crude price.
It marks the first time the Asian LNG price has exceeded $US50mbtu and beats the previous record set a day earlier by 40 per cent, data from S&P Global Platts shows. It was both the biggest single-day price jump and the highest mark for the LNG benchmark since it was first assessed in 2009.
The massive price spike, along with record thermal coal prices, represents the most volatile period for global energy markets since the Covid-19 pandemic began and has elevated the role of the two fossil fuels ahead of the critical COP26 global climate meeting, consultancy Wood Mackenzie said.
“As governments around the globe jostle to outdo one another ahead of next month’s COP26 gathering in Glasgow, they must simultaneously deal with what is now the most turbulent period for global energy markets since the beginning of the pandemic,” said Wood Mackenzie’s Asia-Pacific vice-chair, Gavin Thompson.
“This is a major headache for politicians as strained global energy supplies and strong demand growth send commodity prices higher and force countries across Europe and Asia to burn more coal to keep the lights on.”
Heightened competition among buyers could lead to fresh windfalls for producers in Australia with the two commodities already among the nation’s biggest export earners.
The frenzy among buyers to grab gas volumes could lead to hugely lucrative shipments by Australia’s top LNG exporters like Woodside Petroleum, Credit Suisse said on Wednesday.
A single LNG cargo sold on the spot market is now worth almost double the price of a week ago, according to shipping firm Flex LNG.
“The value of a large LNG cargo is now $US225m, up from about $US120m last week, which was already a very high number,” Flex LNG chief executive Oeystein Kalleklev said on Twitter.
While both European and US gas prices fell on Wednesday, a clamour among Asian buyers to attract volumes to the region saw the LNG price escalate and followed a decree by China for its utilities to secure supplies to help fix its energy crisis.
“This goes to show how desperate gas markets can get though and the global interconnectedness of LNG prices to other global hubs, which puts Asia in a precarious position because of the need to draw on supplies from outside APAC,” Jeff Moore, manager for Asian LNG at Platts Analytics, told S&P Global.
The massive jump in LNG spot prices may also hike concerns for Australia’s gas-hungry manufacturers, with the nation’s east coast domestic gas price now linked to international LNG prices due to Queensland’s export industry.
The Australian Competition & Consumer Commission’s LNG netback series – a local LNG price that takes out the cost of processing and shipping gas to Asian customers – is currently just under $36 a gigajoule for November, quadruple the price most of the local industry normally pays.
Still, the ability of big Asian utilities to continue paying over the odds for both LNG and thermal coal, the two main sources of electricity generation, remains highly uncertain. Thermal coal futures based on the Newcastle spot price are trading at record levels close to $US270 a tonne, exacerbating concern over a further crunch when colder temperatures hit in the looming northern hemisphere winter.
“Asia’s energy importers are hurting more than most. Today, traded coal prices into northeast Asia are soaring as stockpiles dwindle and supply tightens, and this is even before the mercury starts to fall,” WoodMac’s Mr Thompson said. “From India to South Korea, the spectre of electricity blackouts looms as buyers scramble to secure supplies.”
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