Since peaking at USD 18.4/mmbtu (USD 650/kcm) at the end of May, spot LNG prices to South East Asia have dropped 24% to USD 14/mmbtu (USD 494/kcm). That fall has been broadly mirrored by European spot LNG prices, which have now dropped to USD 9.7/mmbtu (USD 343/kcm), although the differential has narrowed by around USD 1.7/mmbtu (USD 60/kcm). European spot LNG pricing remains above European spot gas.
Spot pricing in LNG is something of a misnomer as market access is quite restricted and in this case represents WGI’s best estimate of the price of LNG to be delivered 4-8 weeks in the future.
In our view, there is an interesting correlation between the estimated Asian spot price and the Japanese contract price when lagged by two months since the latter is formally disclosed by the Japanese government and is itself tightly correlated with the JCC crude price. As a result we can forecast the shortterm future trajectory for contract Japanese LNG prices with a fairly high degree of certainty. The drop in the Asian LNG spot price is reportedly related to low current demand for power as the wet summer has reduced air-conditioning demand. However, we also suggest that purchasers might be looking ahead to a decline in contract prices while utilizing high inventory levels pending a fall in the contract price.
We continue to expect that LNG availability to Europe could fall sharply given comparatively high demand ex-Europe. If Asian customers are running down inventory particularly hard now, that could exacerbate the draw away from Europe thus boosting demand for pipeline gas and, potentially, the spot price later in the year, we believe.