Launceston — There are early signs that the rise in the spot price of liquefied natural gas (LNG) for delivery to Asia to a three-month high is starting to crimp demand from price-sensitive buyers such as India.
The spot LNG price rose to $10.50 per million British thermal units (mmBtu) in the week ended April 19, the highest since January 19. The price is up 26.5% from the year’s low of $8.30 hit in early March.
The recent increase in the price has been driven more by supply concerns, with the ongoing conflict in the Middle East raising concerns that shipments from Qatar, the world’s third-largest exporter of the fuel, may be disrupted.
These fears have yet to be realised, but there have been increased costs for LNG shipments as vessels bound for Europe avoid the Red Sea, where Yemen’s Iranian-aligned Houthi rebels have launched missile strikes against several ships, though none of them were LNG carriers.
With the spot price once again above $10 per mmBtu, it has reached levels that in the past have resulted in buyers such as India, and even China, the world’s top LNG importer, cutting back on purchases. That’s because these price levels make it difficult for imported LNG to compete with other fuels in domestic markets.
Commodity analysis company Kpler estimates India’s LNG imports for April at 1.9-million tonnes, down from 2.26-million tonnes in March and 1.98-million tonnes in April last year.
LSEG data pegs India’s April LNG arrivals at 1.79-million tonnes, a four-month low and down from 2.27-million tonnes in March and 1.88-million tonnes in April 2023.
Kpler estimates China’s imports of the super-chilled fuel at 6.14-million tonnes in April, down from 6.64-million tonnes, though above the 5.31-million tonnes in April last year.
China’s LNG imports in the first quarter of 2024 were strong, most likely the result of the cheaper spot prices that prevailed for much of the period, but also because of the recovery of parts of the economy, especially manufacturing.
The official purchasing managers’ index rose to a 13-month high of 51.6 in March, and has now spent the last five months above the 50-point level that separates expansion from contraction.
The improving economic backdrop in China may serve to bolster demand for LNG, but the stronger price is also likely to prove an obstacle.
Much will depend on the availability of alternatives. Interestingly, China’s domestic output of natural gas has also been rising strongly; production in the first quarter rose to 63.19-billion cubic metres, up 5.2% from the same period in 2023.
Japan steady
Developed economies in Asia that import LNG tend to be less sensitive to price because the bulk of imports are secured under long-term contracts, and LNG imports are largely stable.
Kpler estimates that Japan, the world’s second-biggest LNG buyer, imported of 5.12-million tonnes in April, down from 5.96-million tonnes in March, but above the 4.98-million tonnes in April last year.
Japan’s LNG imports usually follow a seasonal pattern of rising during the peak winter and summer demand periods, and tailing off during the shoulder seasons.
South Korea, the world’s third-biggest importer of the fuel, is expected to have arrivals of 4.12-million tonnes in April, up from 3.93-million tonnes in March and 3.23-million tonnes in April last year.
Similar to Japan, South Korea’s imports may decline next month due to seasonal buying patterns.
The overall picture is that Asia’s LNG import volumes are likely to decline in the months ahead as a result of the usual seasonal decline in demand from developed economies, and the higher spot prices deterring purchases from some developing nations.
Reuters
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